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".

Mr Cameron said he was very sorry to see him go. Transport Secretary Philip Hammond will replace Mr Fox.

Labour said Mr Fox had not upheld the standards expected of ministers and his departure had been "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.

Mr Werritty, a former flatmate of Mr Fox and the best man at his wedding, handed out business cards suggesting he was his adviser and was present at meetings Mr Fox had with military figures, diplomats and defence contractors.

Questions were also raised about who paid for Mr Werritty's business activities and whether he had personally benefited from his frequent access to the defence secretary.

No 10 sources said that the prime minister had been willing to give Mr Fox time to stay in his job - at least until the details of a report by Cabinet Secretary Sir Gus O'Donnell into his conduct were published early next week.