Humza Yousaf told SNP MSPs they should quit the party if they do not back Nicola Sturgeon.
The First Minister reportedly made the ultimatum during a private meeting of the nationalist group at Holyrood yesterday.
Mr Yousaf has come under pressure from both inside and outside of the SNP to suspend his predecessor following her arrest on Sunday as part of the police investigation into the party's finances.
Ash Regan and Michelle Thomson, who have both publicly called for Ms Sturgeon to face suspension, were both present at the meeting.
A source told The Times: "It was a clear display of him trying to show he is not weak by threatening his own MSPs."
Mr Yousaf also agreed to send flowers to the former first minister and SNP leader as a mark of "sympathy" after her arrest.
READ MORE: SNP sends Nicola Sturgeon flowers 'as a mark of sympathy' after being arrested
As he left the meeting, he insisted to journalists that he "did not read the riot act" to those who disagreed with his decision not to suspend Ms Sturgeon.
Mr Yousaf said: "I was listening, I was engaged as any good leader would do. I had a really constructive conversation with the SNP group."
Speaking about his predecessor, who spent more than eight years in the top job in Scottish politics, he added: "Nicola Sturgeon is the most impressive politician I think we have seen in Europe, she is an asset to our movement, and to our party.
"It's obviously a difficult time, it's a very very difficult time for her and a difficult time for our party and personally painful to many of us."
But the Scottish Tories accused Mr Yousaf of being "too weak" to take action against the former first minister and SNP leader.
Scottish Conservative chairman Craig Hoy said: "The SNP's established precedent - set by Nicola Sturgeon herself - is to remove the whip from MPs and MSPs while they are under investigation.
"Humza Yousaf has suddenly ditched it because he is too weak to take action against the woman to whom he owes his job.
"So it's little wonder many of his own MSPs are up in arms at this blatant favouritism towards Nicola Sturgeon."
Ms Sturgeon on Sunday became the third SNP figure to be arrested as part of the police probe, which centres on £600,000 crowdfunded from members for an independence campaign.
The ex-first minister, who denies any wrongdoing, was interviewed by detectives for almost seven hours before being released without any charge but pending further investigation.
That mirrored what happened after her husband, former SNP chief executive Peter Murrell, and then treasurer Colin Beattie, were arrested earlier this year.
The SNP has been contacted for comment.