Defence Secretary Liam Fox has resigned.
He has been under pressure after a week of allegations over his working relationship with friend and self-styled adviser Adam Werritty.
In a letter to David Cameron, Mr Fox said he had "mistakenly allowed" his personal and professional responsibilities to become "blurred".
In response, the prime minister said he was very sorry for Mr Fox’s departure but "understood his reasons".
The BBC’s political editor Nick Robinson said the prime minister had concluded Mr Fox could no longer stay in his job amid continuing questions about his links to to his former flatmate Adam Werritty.
It emerged that the lobbyist had accompanied the defence secretary on 18 foreign trips, despite having no official role, and had been handing out business cards suggesting he was an adviser to Mr Fox.
Mr Fox was being investigated by the Cabinet Secretary amid claims that he had broken the ministerial code.
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."
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