In this paper, we address the problem of distributed reconfiguration of networked control systems upon the removal of misbehaving sensors and actuators. In particular, we consider systems with redundant sensors and actuators cooperating to recover from faults. Reconfiguration is performed while minimizing a steady-state estimation error covariance and quadratic control cost. A model-matching condition is imposed on the reconfiguration scheme. It is shown that the reconfiguration and its underlying computation can be distributed. Using an average dwell-time approach, the stability of the distributed reconfiguration scheme under finite-time termination is analyzed. The approach is illustrated in a numerical example.