The Mend, who are mentored by former Take That mogul Nigel Martin-Smith, have been thrown off the ITV1 reality show because of their management links, according to The Sun.
Digital Spy forum members complained when The Mend were successful at the Manchester auditions, claiming that judge Gary Barlow's connection to Martin-Smith may have influenced the panel's verdict.
Cowell has apparently now stepped in to avoid a 'fix' row similar to the one surrounding Ronan Parke on Britain's Got Talent.
Am X Factor rep said: "It's against the rules for any act to be party to a management agreement. As The Mend are currently under a management contract they can't continue in the competition."
Martin-Smith has complained about the decision, arguing that Simon Cowell is "saving face".
"It's a disgrace. No one from X Factor has had anything to do with the band and Simon Cowell hasn't even met them," he said.
The X Factor auditions continue in Liverpool, London and Cardiff next month.