Defence Secretary Liam Fox has resigned after a week of pressure over his working relationship with friend and self-styled adviser Adam Werritty.
Mr Fox was being investigated amid claims he broke the ministerial code.
In a letter to David Cameron, Mr Fox said he had "mistakenly allowed" personal and professional responsibilities to be "blurred".
In response, the prime minister said he was very sorry for Mr Fox's departure but "understood his reasons".
Labour said Mr Fox had not upheld the standards expected of ministers and his departure was "inevitable".
The defence secretary has been under pressure since it emerged that Mr Werritty, a lobbyist, had met him on 18 foreign trips despite having no official role, and had been handing out business cards suggesting he was an adviser to Mr Fox.
Questions have also been raised about who paid for Mr Werritty's business activities and whether he had personally benefited from his frequent access to the defence secretary.
'National interest'No 10 sources said that the prime minister had been willing Mr Fox to stay in his job until the details of a report by Cabinet Secretary Sir Gus O'Donnell in his conduct was published early next week.
The BBC's Norman Smith said it was Mr Fox's decision to quit and his replacement was expected to be named soon.
In his resignation letter, Mr Fox said he had "mistakenly allowed the distinction between my personal interest and my government activities to become blurred".
"The consequences of this have become clearer in recent days," he added. "I am very sorry for this.
"I have also repeatedly said that the national interest must always come before personal interest.
"I now have to hold myself to my own standard. I have therefore decided, with great sadness, to resign from my post as secretary of state for defence."
PM's reactionResponding to Mr Fox's resignation, Mr Cameron said: "I understand your reasons for deciding to resign as defence secretary, although I am very sorry to see you go.
"We have worked closely for these last six years, and you have been a key member of my team throughout that time."
He said Mr Fox, MP for North Somerset, had "done a superb job in the 17 months since the election, and as shadow defence secretary before that" and had overseen changes that would allow the armed forces to "meet the challenges of the modern era".
Mr Fox apologised to MPs earlier this week about but maintained that there was no wrongdoing in his dealings with Mr Werritty.
'Broke rules'Labour said Mr Fox had "fallen foul of the standards expected of ministers and broken the rules".
"The facts have caught up with Liam Fox and he had to resign," shadow defence secretary Jim Murphy said. "It was unconceivable that once a minister had been seen to break their own code of conduct on so many occasions that he could survive."
But Conservative backbencher Peter Bone said Mr Fox had made mistakes but they did not constitute a "hanging offence".
"He said he made mistakes and with hindsight he wouldn't have done it but I didn't think that was enough to require him to resign," he told the BBC.
"But when the story, every news item, isn't about what's happening in Afghanistan and what's happening in Libya but who said what to who then he put his country first and resigned."
Source: http://www.bbc.co.uk/news/uk-politics-15300751
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