Overly political direct

I'm a manager in a  not for profit orgnisation and experiencing problems with a direct who works as a section team leader. I have been managing this individual for 8 weeks and my boss is very angry at some of the behaviour he considers to be wayward and unduly pushing from this direct. I'm wondering if anyone can offer some perspective on this and suggest ways forward. This individuals behaviours are as follows: acts differently in front of the team with me in a negative and dismissive fashion and continually finds faults/identifies areas for mprovment despite some of this  being outside of his sphere of influence and is something that  other managers attend to. I gave feedback on the latter and he responds by pointing out risks of litigation etc, which in my view is non existant. Worryingly other team members are being off hand  with other managers since he has been on the scene and he enjoys gossiping about other individuals outside of the business. I am also being told by team members that I am lucky to have him as a manager and that I need to keep him.How to I address his behaviour and let other team members know that their deterioation in attitude is not acceptable? I feel frustrated