The Pakistan Cricket Board (PCB) served two show-cause notices to the 65-year-old former batsman, first over his outburst against Afridi.
In announcing his retirement from international cricket last week, Afridi accused Ilyas of insisting on his son-in-law Imran Farhat making the national team, to which Ilyas responded with derogatory remarks.
"We served two separate show-cause notices to Mr Ilyas and his reply could not satisfy the PCB, so we have suspended his contract and a committee will be announced to take up the matter further," PCB spokesman Nadeem Sarwar told AFP.
Ilays appeared in a television show on Monday to discuss Afridi's tussle with the PCB, sitting next to Butt who was in February banned for 10 years by the International Cricket Council (ICC) over spot-fixing.
Under ICC rules, no board member can liaise with a banned player.
The ICC said Wednesday it was inquiring into Ilyas's appearance on the show, during which PCB chairman Ijaz Butt also spoke by telephone link-up.
"Until its investigation is complete, the ICC has no further comments," an ICC spokesman said.
Ilyas, a paid selector of the PCB, admitted to violating the code of conduct, telling local TV stations that: "Afridi mentioned my daughter's name and in anger, I made some comments."
Ilyas played 10 Tests for Pakistan between 1964-69.
Pakistan cricket is facing fresh turmoil after Afridi went to court, demanding that the PCB reinstate his contract and allow him to play abroad.
The PCB said Afridi deserved the punishment for his abrupt decision to retire and accusations against the Board of mistreatment.
PCB officials are due to appear in court on Thursday.
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