Joel Fitzgibbon has resigned as Defence Minister, after saying he did not fully comply with the ministerial code of conduct.
At a press conference today, Prime Minister Kevin Rudd said Mr Fitzgibbon offered his letter of resignation at 1pm today and he had accepted the decision.
"The minister's decision was to extend his letter of resignation at his initiative," Mr Rudd said.
"I accepted that resignation, it was the right thing to do."
Mr Rudd described Mr Fitzgibbon as a "first-class Defence Minister".
"The Government expects high standards of accountability on the part of ministers," he said.
Mr Rudd said it was on that basis that the minister had resigned today.
Mr Fitzgibbon is the first Rudd Government minister to lose his job and it comes after months of pressure on Mr Fitzgibbon.
Mr Rudd said a new defence minister would be named shortly.
"I feel very sad about this," Mr Rudd told a press conference in Canberra, but he insisted high standards of ministerial accountability must be met.
Mr Fitzgibbon said he had quit after it was revealed his ministerial office was used for a meeting between a big US health insurer, Humana, his brother Mark, who heads the health fund NIB, and government and veterans' affairs officials.
"I have learned that one meeting between the parties was held in my ministerial office. Further, I understand that members of my staff sat in on a number of meetings," Mr Fitzgibbon wrote in his resignation letter to Mr Rudd.
Mr Fitzgibbon said he had made it clear to all parties that he not be involved in the talks, but it now emerged there was a link and to protect the integrity of the Government he had decided to resign.
"Despite my decision to avoid being part of any discussions between the parties, I am not absolutely satisfied that the objective was achieved to the extent necessary to ensure full compliance with your ministerial code of conduct," the letter says.
Mr Rudd said Mr Fitzgibbon offered his resignation at a meeting in his office after he earlier met Mr Rudd's chief of staff Alister Jordan and the Special Minister of State, John Faulkner.
Mr Rudd praised Mr Fitzgibbon for working hard and with great diligence to produce the Defence White Paper last month and to withdraw Australian troops from Iraq, but he said there had also been mistakes in relation to matters of accountability.
Mr Rudd said Mr Fitzgibbon had made "mistakes in terms of accountability and paid a high price".
He said Mr Fitzgibbon had accepted responsibility for the mistakes, and "there have been a number of them".
Mr Rudd said Mr Fitzgibbon's latest position on the talks was a "significant departure" from undertakings he had given in March.
Mr Rudd emphasised that there was no contractual agreement between NIB, Humana or the Australian Government.
He said Mr Fitzgibbon's resignation goes to the "probability of the process engaged in".
Mr Rudd said Mr Fitzgibbon had engaged in important Defence strategic reform, and he "feels sad about this", but it was important to maintain high standards of accountability.
Mr Rudd confirmed his confidence in the Defence Department and the Defence Force.
This week, Mr Fitzgibbon was put on notice by Mr Rudd after again having to admit that he forgot to disclose a gift on the register of interests.
But the allegations that initially prompted interest in Mr Fitzgibbon's register were yesterday dismissed by the intelligence watchdog, which found no evidence that Defence officials secretly spied on their minister or investigated his relationship with a Chinese businesswoman, Helen Liu.
