The Peruvian government has decided to dissolve its intelligence services.
Montesinos is one of Peru's most reviled figures
Prime Minister Carlos Ferrero said too many agents had ties to disgraced former President Alberto Fujimori and his spy-chief, Vladimiro Montesinos.
The decision came after the head of the National Intelligence Council resigned just two days into his tenure.
Ricardo Arbocco was the seventh man to head the scandal-hit agency since President Alejandro Toledo came to power in June 2001.
Mr Arbocco stood down on Monday, after it emerged he was being investigated for alleged corruption.
The previous intelligence chief resigned last week, amid allegations that members of his staff were plotting against Peru's interior minister.
BBC South America correspondent Elliott Gotkine says the latest resignation prompted the government to conclude that its intelligence agency had become more of a liability than an asset.
A special commission is to examine how best to restructure the service.
The National Intelligence Council has never really recovered from the fall of Montesinos, our correspondent adds.
He has been jailed for abuse of power and is awaiting trial on dozens of other charges - including money laundering and drug trafficking.
Mr Fujimori, who lives in Japan in self-imposed exile, is wanted by Peru for allegedly organising death squads.