California Speed fell out with the team bosses after the European Grand Prix at the Nuerurgring and leaves the without scoring a point.
"As our test and reserve driver Sebastian has carried out sterling work for us," said BMW team boss Mario Theissen.
"However the current testing rules mean that he barely gets the chance to drive for us. Now he has been offered the opportunity to get inside a Toro Rosso cockpit."
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Vettel, who has been the BMW test driver since last year, became the youngest driver in Formula One history to score when he finished eighth in his race debut with BMW Sauber in June at the US Grand Prix, aged just 19, standing in for Poland's Robert Kubica.
"We have sponsored and coached Sebastian over a number of years," Theissen continued. "BMW and Red Bull have a long standing partnership in supporting Sebastian. Toro Rosso is the sister team of Red Bull Racing and in that context it makes sense for us to release him."
Theissen also added that Germany's Timo Glock, who raced for Jordan in 2004 and is now competing in the GP2 support series, will replace Vettel as their reserve.
Toro Rosso have not given a reason for Speed's exit, although the 24-year-old made clear after the Nuerburgring race that his relationship with team principal Franz Tost and co-owner Gerhard Berger was beyond repair.
"As far as my future in F1 is concerned, you couldn't pay me enough money to race for those two people again," Speed said on his website.
Speed had also accused the team of wanting to get rid of him and Italian team mate Vitantonio Liuzzi.
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