The move suggests Uber is starting to distance itself from its head of autonomous vehicle research, Anthony Levandowski, amid a widening public relations fallout from the high-profile legal case.
The demotion follows repeated queries from the judge hearing the case, who challenged Uber to fire Mr Levandowski if he did not co-operate with the investigation.
Mr Levandowski on Thursday announced his move in an email to Uber staff. "Travis [Kalanick] and I have decided that I will be recused from all Lidar-related work and management at Uber, through the remainder of the Waymo litigation," he wrote, referring to a laser sensor that is at the centre of the lawsuit.
"Making this organisational change means I will have absolutely no oversight over or input into our Lidar work. Going forward, please make sure not to include me in meetings or email threads related to Lidar, or ask me for advice on this topic," he wrote in the email, which was first published by Business Insider.
Even so Mr Levandowski will still be actively involved in the self-driving programme by working on software as well as operations in cities where self-driving cars are being tested.
The lawsuit, which was brought by Waymo, the self-driving car unit of Alphabet, accuses Mr Levandowski of stealing trade secrets, including Lidar designs, while an employee at Waymo and applying them for the benefit of Uber.
Mr Levandowski, one of the core early members of Alphabet's self-driving car team, left Alphabet in January 2016 and founded Otto, which was quickly acquired by Uber.
Uber has denied wrongdoing in the case, and Mr Levandowski recently retained his own counsel, who have asked the court to assert his fifth amendment right to avoid self-incrimination during document submission.
Next week, the judge will decide on whether to grant a preliminary injunction that could temporarily halt parts of Uber's self-driving car research.
After Mr Levandowski's lawyers last month asked that their client assert his fifth amendment rights to not produce certain documents requested by the court, Judge William Alsop asked Uber why the company was still employing him.
"You can say to your employee, you're an important employee. This is an important case to us. You either testify or we may fire you," said Judge Alsop, addressing Uber's counsel. "Of course, you've got the right to do that."
While the demotion stops short of that, it could help smooth things over in court next Wednesday, when Judge Alsop is due to decide on the preliminary injunction requested by Waymo.
Copyright The Financial Times Limited 2017