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The move came in a series of votes, first to remove his power to appoint committee chairs and then to remove his powers to act during an emergency.
Just before the first vote, Ford addressed the chamber and threatened legal action, saying he was concerned about setting a precedent that could affect future mayors.
"If someone else steps out of line as I have, it will affect mayors for years to come," he said. "I can't support it. I completely understand where they come from."
He also said he regretted the cost to taxpayers of a legal battle over the council's action, but he felt he had no choice.
At one point, Ford said taxpayers "are going to have to pay a fortune for this." That drew a shout from the public gallery: "Then resign!"
Under the vote, Ford technically remains mayor but no longer maintains key powers delegated to him by the council. He does keep the power to technically lead the council and to preside over official functions.
The council does not have the legal authority to remove a mayor from office.
The Toronto Star notes that the appointment power is important because most proposals must be passed by committees before they become law. The chairmen, the newspaper points out, have usually followed the mayor's orders for fear of losing their powerful posts. Now, they are free to do as they please.
The council is expected to meet Monday to take further action, including freezing the operating budget for the mayor's office.
During the morning hearing, Ford frequently stood up from his seat on the council floor and walked around to speak to members, including his brother, council member Doug Ford.
Council member John Filion said before the vote that the steps were being taken "reluctantly" and "sadly." He said the council had "reached the point where this is both warranted and necessary" to end a "chaotic situation."
"If there is a silver lining in this sad situation, this issue has united members of this council like they haven't been united for a period of this term of office," Filion said.
The council — which has already called on Ford to resign — stepped up the pressure after the 44-year-old mayor shocked Canadians on live TV with graphic language that surpassed even his most raunchy offerings.
It was only the latest in a series of can-you-top-this incidents involving the combative mayor of Canada's largest city.
It stems from a report several months ago of a video that showed Ford smoking crack cocaine. Ford initially denied the report but eventually acknowledged it after Toronto police said they had a copy of the video. Ford said the incident occurred while he was in a drunken stupor.
The City Council moved to take stronger action Friday after Ford gave an impromptu morning news conference Thursday in which he denied allegations by some of his former staff members that he had partied with prostitutes, snorted cocaine and used OxyContin.
The allegations were contained in a police report released as a court document Wednesday.
Ford, in his heated morning statement, railed against his former staffers and their allegations, and threatened to sue them. He was particularly irate about an allegation that he had performed oral sex on one of his female staffers.
In graphic remarks, carried live on TV as reporters surrounded him, Ford said: "(The police document) says I wanted to eat her (expletive). I've never said that in my life to her. I would never do that. I'm happily married. I've got more than enough to eat at home."
On Thursday afternoon, in a second hastily called news conference, Ford apologized for the obscene remarks he made to reporters earlier in the day and acknowledged for the first time that he is getting professional help for his drinking problem.
In a brief statement, with his wife, Renata, by his side, the embattled mayor — who has also already acknowledged buying illegal drugs — said that he has been under "tremendous, tremendous stress" for the past six months. He also said he was getting health care "support."
Afterward, the premier of Ontario indicated for the first time that the provincial government might intervene, calling the Ford spectacle "truly disturbing."