He also abolished the Vatican department responsible for the lifting of the excommunication of Richard Williamson, who is one of the leaders of the Society of St Pius X.
The rehabilitation, in January, threatened to undo decades of work to heal rifts between Catholics and Jews.
The German-born Pope was forced to apologise to Jewish leaders and atoned by visiting the Yad Vashem Holocaust Memorial in Israel in May.
The incident made Pope Benedict, one of the most admired theologians of his generation, appear incompetent.
Faced with intense criticism from Catholic leaders, he also wrote a letter to the world's bishops to explain his mistake.
Today, however, the Pope - once nicknamed the Panzer Cardinal because of his tough approach to dissenters - rounded on those he believes were to blame for the fiasco.
He announced the abolition of the Ecclesia Dei commission, the body set up in 1988 to bring traditionalists back into the Church, and deliberately put its chief, Cardinal Dario Castrillon Hoyos, out of a job.
He also effectively sacked Italian Monsignor Camille Perl, Cardinal Castrillon's deputy.
Relations with traditionalists were instead put under the control of the Congregation for the Doctrine of the Faith, the department the Pope headed when he was Cardinal Joseph Ratzinger, and which is renowned for its investigative as well as doctrinal rigour.
The Pope was persuaded in January to lift the excommunication of Bishop Williamson and four others expelled from the Church by John Paul II after they were illicitly ordained by Archbishop Marcel Lefebvre.
He was assured by the leaders of Ecclesia Dei that the move would help to end a 20-year schism caused by the excommunications and bring a million traditionalists - who objected to the modernising reforms of the 1960s - back into the Church.
But he has always insisted that he was never told that Bishop Williamson had repeatedly and publicly questioned the existence of the Nazi gas chambers in which six million Jews perished.
He moved against those who embarrassed him by issuing a document called Ecclesiae unitatem which, according to the Vatican commentator John Allen, leaves the heads of Ecclesia Dei 'both out of work'.
'Both men played key roles in the decision to lift the excommunications, including that of Bishop Richard Williamson,' wrote Mr Allen in the U.S. National Catholic Reporter.
Cardinal Castrillon, now 80, was once considered a possible successor to John Paul II and is known for his admiration of traditionalist rites.
On the week his excommunication was lifted, Bishop Williamson appeared on Swedish television claiming that no more than 300,000 Jews died in the Holocaust.
He later apologised for the trouble he caused but refused to recant.
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