If confirmed, the demotion of Choe Ryong Hae will be the latest in a series of executions, purges and dismissals that Kim has orchestrated in what analysts say is a further strengthening of his grip on power since taking over in late 2011.
The office of lawmaker Shin Kyung-min said that the National Intelligence Service disclosed the information during a closed-door briefing for members of the legislature's intelligence committee.
A memo on the briefing provided by Shins' office cited the NIS as saying it has intelligence that Choe was sent to the farm for reeducation in early November.
The NIS was quoted as saying that Choe's demotion was related to the alleged collapse of a water tunnel at a power station. Choe was reportedly responsible for the construction of the power station in North Korea's northeastern Ryanggang Province.
Choe was once considered to be the North's No. 2 most powerful official after the 2013 execution of Kim's uncle Jang Song Thaek.
But Choe's influence was believed to have diminished in April 2014 when his title as the top political officer at the Korean People's Army was found to have been given to Hwang Pyong So, who is now widely considered to be the North's No.2.
South Korea's spy agency has a mixed record of tracking developments in North Korea. Information about the secretive, authoritarian state is often impossible to confirm.
The spy service faced widespread criticism when it failed to predict the North's artillery strikes on a South Korean island in 2010 because it ignored intercepted North Korean communications that indicated a possible attack. The agency saved face in 2013 when it said Jang was executed, days before Pyongyang announced the former No. 2 had been executed for treason.
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