A power struggle in Libya’s UN-backed government that erupted over street protests has raised fears about the future of fragile peace-building efforts after its prime minister, Fayez al-Sarraj, said the interior minister had acted unlawfully in giving his backing to the calls for improved living standards.

The surprise developments, unfolding over the past week, move Libya away from a carefully planned UN-backed move to build on a ceasefire and plans to resume oil production agreed a fortnight ago.

Serraj suspended Fathi Bashagha from office pending an investigation that is supposed to take place within 72 hours.

Bashagha was critical to the UN-backed Government of National Accord repelling the year-long siege of the capital by warlord Gen Khalifa Haftar’s Libyan National Army, but he has always had an uneasy relationship with Serraj, and fostered wider political ambitions. There were reports that Haftar was trying to exploit the divisions by setting up checkpoints around main disputed areas such as Sirte

Bashagha said he will co-operate with any inquiry by Serraj into the allegations that he has been supporting the protests over living standards and electricity cuts, adding he was even willing to be cross-examined on live TV.

Bashagha, highly regarded in some western capitals despite his Muslim Brotherhood background, said he was fighting on the side of the Libyan people and against corruption. In a series of statements, including on social media, he had openly supported the right of civilians to demonstrate and urged government to listen to the pained voice of the people. His return to Tripoli at the weekend after a visit to Turkey was greeted by a show of force by his supporters.

In an effort to shore up his power, Serraj has appointed a new defence minister, a new chief of defence staff, met up local municipal leaders and set up an inquiry into corruption in the health ministry over the past two years.

Serraj now clearly views Bashagha as a threat to his power and he can either sack him permanently or, as the US wants, reinstate him and restart the uneasy co-operation.

The infighting is a blow to Turkey which has been backing the GNA financially and militarily in return for Libyan concessions on gas exploration in the Mediterranean and investment projects.

The acting UN special envoy for Libya, Stephanie Williams, has called for calm and on Saturday expressed concern about the turn of events, including reports of excessive violence in suppressing protests in Tripoli.

She had been seeking to progress on a ceasefire statement agreed on 21 August by Serraj and the parliamentary speaker representing the rival eastern faction, Aguila Saleh. Williams has been in Cairo to learn more Egypt’s backing for Saleh’s plan, and Haftar’s political future.

The next stage was due to be an UNSMIL-hosted “5+5” format to focus immediately on modalities of a ceasefire and how to establish an effective demilitarised solution along the de facto ceasefire line of Sirte and Jufra. The agreement provides for a process of de-escalation and departure of all foreign forces and mercenaries from Libya.