The Canadian Olympic Committee has pulled Priestman out of the team due to her suspension by Canada Soccer.
Canada Soccer chief executive and general secretary Kevin Blue said in a statement: "Over the past 24 hours, additional information has come to our attention regarding previous drone use against opponents, predating the Paris 2024 Olympic Games.
"In light of these new revelations, Canada Soccer has made the decision to suspend women's national soccer team head coach Bev Priestman for the remainder of the Paris 2024 Olympic Games, and until the completion of our recently announced independent external review."
Assistant coach Andy Spence will lead the Canada women's team for the remainder of the Olympics.
FIFA has started disciplinary proceedings against the Canadians after they were caught filming New Zealand training sessions with a drone in the lead up to the match, but it's unclear if they'll face any further sanctions from football's world governing body.
Priestman had previously apologised to the New Zealand players for what had happened and said ultimate responsibility lay with her.
Meanwhile, the Football Ferns concede the spying scandal surrounding their side affected their preparations for their Olympic opener against Canada.
The 2-1 loss leaves New Zealand with a tough task to reach the knockout stages with games still to come against Colombia and hosts France.
Football Ferns head coach Michael Mayne was asked if the saga had impacted the team's performance against Canada.
While he was adamant the spying incidents and subsequent fallout did not cost New Zealand victory, he said the scandal did disrupt his side's build-up to the match.
"Yeah, the timing wasn't ideal," Mayne said.
"It didn't allow for us to make any changes really once we found out (about the spying).
"Obviously there was a little bit of extra feeling in the game. But in terms of the way the game played out, there were moments we managed really well and then there were moments, particularly in transition, where we didn't manage as well.
"The result is what the result is, we're still disappointed with will look to be better for the next game."
The Football Ferns' next game is against Colombia on Monday.
