The smiling cartoon memorial was erected in the grounds of a Cincinnati graveyard by the family of Sergeant Kimberly Walker, eight months after she was found strangled in a hotel room.
The Walker family also bought a near duplicate headstone for the slain soldier's living twin sister, the Associated Press reports.
But both have been removed, with Spring Grove cemetery president Gary Freytag telling the agency the family will be reimbursed, but that: "We've decided that they aren't appropriate for our historic cemetery and they can't be displayed here."
Walker's devastated mother Deborah told WCPO her daughter, who served two tours in Iraq, loved the character and collected paraphernalia. She added the 28-year-old had even been buried with a SpongeBob doll.
"Her bathroom - everything was SpongeBob. Her bed, her sheets, everything was SpongeBob," she revealed.
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According to TIME magazine, the monuments, at a cost of $16,000 (£10,000) each, had been installed on 10 October with the approval of a junior cemetery employee, but a day later the family was told an error had been made and they would have to go.
The cemetery had apologised for the matter and said in a statement published by UPI: "We are working with the Walker family and are committed to design a solution, at our expense, that will properly memorialise Kimberly, within the context of Spring Grove's historic landscape and guidelines."
Freytag and the family are due to meet on Tuesday to try and come to an agreement.