Tulip Siddiq has resigned as economic secretary to the Treasury, saying the controversy over her family finances is becoming a "distraction" from the work of government.
Siddiq has been subject to controversy around her financial and property links to her aunt, the deposed former leader of Bangladesh.
Earlier this month, she referred herself to the prime minister Keir Starmer's independent adviser on ministerial standards, Sir Laurie Magnus, after it emerged that she owned several London properties associated with people linked to Bangladesh's former PM Sheikh Hasina.
Magnus on Tuesday said he had found no breach of the ministerial code and no evidence to suggest that Siddiq had acted improperly.
However, he said her handling of the links in question had been "regrettable" given the reputational risks to herself and the government
"I would not advise that this shortcoming should be taken as a breach of the ministerial code, but you will want to consider her ongoing responsibilities in the light of this," he said.
In a letter to Starmer, Siddiq said: "My family connections are a matter of public record, and when I became a minister I provided the full details of my relationships and private interests to the government.
"After extensive consultation with officials, I was advised to state in my declaration of interests that my aunt is the former prime minister of Bangladesh and to recuse myself from matters relating to Bangladesh to avoid any perception of a conflict of interest."
However, she said it was "clear" that continuing as a Treasury minister would be a "distraction from the work of the government".
"My loyalty is and always will be to this Labour government and the programme of national renewal and transformation it has embarked upon," she said.
"I have therefore decided to resign from my ministerial position. I would like to thank you for the privilege of serving in your government, which I will continue to support in any way I can from the backbenches."
In a letter to Siddiq, Starmer said he accepted her resignation "with sadness".
She has been replaced by Emma Reynolds, the Labour MP for Wycombe.
"I want to thank you for self-referring to the independent adviser and for your full co-operation with the establishment of facts," the prime minister wrote.
"I appreciate that to end ongoing distraction from delivering our agenda to change Britain, you have made a difficult decision and want to be clear that the door remains open for you going forward."