New York announced the move following an 8-3 loss to Los Angeles on Saturday night. Reliever Jerry Blevins will start Sunday's game.
The left-handed Vargas is 2-6 with an 8.60 ERA in nine starts since opening the season on the DL with a broken right hand. He most recently gave up seven runs in 2⅓ innings at Coors Field on Tuesday.
Chris Flexen was recalled from Triple-A Las Vegas to take Vargas' spot.