The Tory grandee backed demands for a "meaningful" vote on the final divorce deal after warning that quitting the European Union was the "most momentous peacetime decision of our time".
He was later told that Prime Minister Theresa May was firing him from his roles advising the Government on a number of areas, including its industrial strategy.
The defiant peer said he was sorry the Government would lose his expertise and insisted Britain's future was tied to the EU.
He said: "I have just been told by the Chief Whip in the Lords that No 10 is to sack me from the five jobs with which I have been helping the Government following my vote in the House of Lords earlier today.
"This is entirely the right of the Prime Minister and I'm sorry that the expertise which I have put at the Government's disposal over the last six years has now come to an end.
"However, in the last resort, I believe, as I said in the House of Lords, the future of this country is inextricably interwoven with our European friends.
"It's the duty of Parliament to assert its sovereignty in determining the legacy we leave to new generations of young people."
The peer was asked to help the Government with plans to restore deprived estates under David Cameron and was also involved with developing proposals for east London's future with George Osborne.
As well as advice on Swansea's city deal he has also worked with the Department for Business, Energy and Industrial Strategy and has been a national infrastructure commissioner.
Lord Heseltine was one of 366 peers who inflicted a second defeat on the Government's Brexit Bill.
After three hours of heated exchanges, the House of Lords backed amending the European Union (Notification of Withdrawal) Bill by a majority of 98.
Brexit Secretary David Davis accused peers of trying to "frustrate" Britain's exit from the European Union and insisted the Government intends to overturn the result.
He said: "It is disappointing that the House of Lords has chosen to make further changes to a Bill that the Commons passed without amendment.
"It has a straightforward purpose - to enact the referendum result and allow the Government to get on with negotiating a new partnership with the EU.
"It is clear that some in the Lords would seek to frustrate that process, and it is the Government's intention to ensure that does not happen. We will now aim to overturn these amendments in the House of Commons."
After his announcement, Lord Heseltine received praise from Tory MP Anna Soubry, who said his absence would be felt.
The prominent Remain campaigner tweeted: "#MichaelHeseltine gave his time, enormous experience, great wisdom & remarkable energy to Cameron & May's Govt. He will be greatly missed."