Liberal MPs voted 19 to 11 to expel Ms Deeming for "bringing discredit" to the party during a two-hour meeting at state parliament on Friday morning.
Upper house MP Renee Heath, who was responsible for taking disputed minutes from another meeting in March to expel Ms Deeming, was removed as party secretary as part of a separate motion.
Ms Deeming was a no-show after lawyers served Mr Pesutto a defamation concerns notice, threatening court action if he did not immediately withdraw the motion, publish an apology to her on his website and pay her compensation and legal costs.
Liberal frontbencher James Newbury, one of the signatories to the motion to expel Ms Deeming, said the Victorian Liberals were moving forward behind John Pesutto.
"You cannot sue your boss and expect to keep your job. Suing your party and leader is a gross act of betrayal," he told reporters after the vote.
Opposition tourism, sport and events spokesman Sam Groth said Friday's special meeting should be a "line in the sand" for the party ahead of the May 23 state budget.
"We need to start listening to people. At the moment we've been talking about ourselves," he said.
Mr Pesutto entered the party room flanked by Cindy McLeish, Roma Britnell, Georgie Crozier, Michael O'Brien, David Southwick and Matt Bach.
Ms Crozier, the opposition's upper house leader, said Ms Deeming's threat to Mr Pesutto was "extremely disappointing" but wouldn't be drawn on whether she should be booted from the party altogether.
Shadow Treasurer Brad Rowswell, who said he would vote for the motion, echoed that sentiment and backed Mr Pesutto to survive as leader despite the internal turmoil.
Backbencher Beverley McArthur, a conservative factional ally of Ms Deeming, was one of the only Liberal MPs willing to publicly say she would vote against the motion.
Rowville MP Kim Wells said the looming defamation action would make Ms Deeming's expulsion more difficult.
Ms Deeming last week demanded the Victorian Liberal leader agree to issue a media statement exonerating her of being a Nazi or Nazi sympathiser or face legal action.
She appeared to back down from the ultimatum on Saturday, saying she never considered suing the Liberal Party and instead contemplated legal mediation as a way to settle on the conditions of her suspension.
It is the second time the Liberal party room has considered expelling Ms Deeming after she attended an anti-transgender rights rally earlier this year in Melbourne where neo-Nazis performed the "heil Hitler" salute.
A compromise was struck when the first Mr Pesutto-led motion, supported by a 15-page dossier accusing the MP of protesting alongside people who were "known to be publicly associated with far right-wing extremist groups including neo-Nazi activists", failed to garner enough support.
The upper house MP will remain on the crossbench as an independent.
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