Glasgow City Council confirmed Harry Clarke had been suspended following evidence at the ongoing inquiry into the tragedy, which killed six people.
The inquiry has heard Mr Clarke, 58, previously fainted while working as a bus driver but failed to disclose the incident when he joined the council.
It has also heard a claim Mr Clarke "lied through his teeth" to doctors.
A spokesman for the council confirmed that it had suspended Mr Clarke on a precautionary basis pending a full disciplinary investigation.
He added: "A number of allegations have been made during the enquiry in regard to Mr Clarke's conduct before and at the point where he commenced employment with the council.
"These allegations have yet to be put to Mr Clarke and he has not yet had the opportunity of responding to them. The internal investigation will therefore take place at the conclusion of the fatal accident inquiry".
The fatal accident inquiry (FAI) at Glasgow Sheriff Court has previously heard evidence that Mr Clarke had suffered episodes of dizziness and fainting for decades before the fatal crash on 22 December, when several witnesses reported seeing him slumped behind the wheel on the bin lorry as it went out of control in the city centre.
But he failed to disclose his health history to the DVLA and on job application forms, and was said to have continued to deny any history of blackouts even after the bin lorry crash.
In April 2010 - shortly before he joined the council - Mr Clarke fainted on a stationary bus while working as a driver for First Bus.
The FAI has heard claims that Mr Clarke was "on his last legs" at the bus firm following repeated sick days prior to his blackout.
Paramedics examined him on the bus and he refused to accompany them to hospital, instead returning to the depot where he informed his managers about the blackout.
He visited Baillieston Health Centre and told his GP, Dr Gerard McKaig, that he fainted "at work, in canteen, hot environment, no warning signs".
Later, he visited a second GP, Dr John Langan, and repeated his claim that he fainted in the work canteen but then told him he had felt light-headed beforehand.
However, two letters from First's medical officer Dr Kenneth Lyons indicated that Mr Clarke fainted on a stationary bus.
DVLA guidelines to GPs state that people who have fainted may be fit to return to the wheel if there was provocational factors, such as a hot environment, prodromal features such as light headedness, and if a faint "is unlikely to occur while sitting or lying".
Dr Langan later wrote to First Bus diagnosing the blackout as a "simple" faint which did not require Mr Clarke to give up driving.
The GP said he would have looked at Mr Clarke's medical history over the past five years before making his diagnosis.
He said "nothing jumped out at me at the time" to merit diagnosing a more serious condition.
During Thursday's evidence, Ronald Conway, the solicitor advocate acting for the family of bin lorry crash victim Stephenie Tait, put it to Dr Langan: "Mr Clarke has lied through his teeth to you and Dr McKaig and one of the reasons he has got away with it is because you failed to properly interrogate and tease out the details of the incident at your encounter with him."
Dr Langan replied: "If a patient misled me or lied to me, that's not something I usually expect to happen."
The Crown Office has already said  there will be no criminal prosecution over the crash, with senior lawyers deeming it a "tragic accident".
Erin McQuade, 18, her grandparents Jack Sweeney, 68, and his 69-year-old wife Lorraine, all from Dumbarton, died in the incident in the city's Queen Street and George Square.
Stephenie Tait, 29, and Jacqueline Morton, 51, both from Glasgow, and Gillian Ewing, 52, from Edinburgh, were also killed when the truck mounted the pavement before crashing into the side of the Millennium Hotel.
A further 15 people were injured.
The driver who was behind the wheel of the bin lorry that crashed in Glasgow has been suspended by his employer.