The inspector was seen in civil dress during the protest, which was allegedly organised to foil the march called by the opposition parties to oppose the government move to shift 'Dharna Chowk' to the city outskirts.
Some people were injured during the clash between the two groups of protestors and also in a baton charge by police.
The opposition parties alleged that the protest for shifting of 'Dharna Chowk' was organised at the instance of the ruling Telangana Rashtra Samithi (TRS).
Telangana Joint Action Committee (TJAC) chairman M Kodandaram had claimed that police personnel in civil dress participated in the protest in support of the government stand.
Deputy Commissioner of Police, Central Zone, Joel Davis said Ms Sreedevi was drafted for surveillance duty in plain clothes to watch over any anti-social elements at 'Dharna Chowk' but it came to his notice that she was found holding a placard among the protestors.
The DCP ordered an inquiry, pending which she has been withdrawn from the duties of Lake Police with immediate effect and attached to the Central Zone Control Room.
All opposition parties have been unitedly fighting against the government move to shift 'Dharna Chowk', a popular venue of protests from Indira Park in the heart of the city. They alleged that the government is suppressing the voice of dissent.
On Monday when opposition parties called for a march to Indira Park, a group of people said to be local residents began a protest in support of the government move, saying that the presence of 'Dharna Chowk' was causing them inconvenience throughout the year.