First runner-up Helen Salas will assume the title and compete at the 2007 Miss USA pageant on March 23 in Los Angeles.
The shocking photos came hot on the fashionable heels of a scandal that rocked reigning Miss USA Tara Conner. The pics show Rees exposing her breasts, passionately kissing other young women, and simulating oral sex with females and a male.
"The pictures were disgusting," Miss USA co-owner Donald Trump told Larry King on CNN Thursday night. "These pictures were pretty far out there and that is not representative of Miss USA. We had no choice but to terminate her."
Rees insists the raunchy behaviour in the photos was "an isolated incident."
In a statement, she said: "While I take full responsibility for the photographs, I want everyone to know the truth. This was by no means representative of who I was, who I am, or who I will become. I have no intentions to disgrace the state of Nevada, the Miss Universe Organization, or Mr. Donald Trump."
Rees believes it was unfair of pageant officials to strip her of her crown.
"I am very embarrassed by the situation. Regardless, such a brief and distant lapse in judgment does not warrant my loss of the title I worked so hard to achieve," she said in her statement.
Rees, 22, was crowned Miss Nevada in Las Vegas in October and was due to represent the state in the Miss USA pageant next spring.
Earlier this month, she was the guest of honour at a Special Olympics bowling tournament and last month attended an event for underprivileged children. But Rees showed off a much wilder side in the pictures, taken during a party in Tampa, Florida when she was 19.
Last Tuesday, Trump announced that hard-partying Miss USA Tara Conner - accused of underage drinking, drug use and promiscuous behaviour - was going to enter rehab but will keep her title.