Anti-corruption minister Tulip Siddiq has resigned from her role “to avoid distraction for the Government” following a corruption probe in Bangladesh.
The Labour MP’s aunt is the former Bangladeshi prime minister Sheikh Hasina, who fled into exile after being deposed last year.
The former prime minister is facing an investigation by an anti-corruption commission in Bangladesh, with Ms Siddiq reportedly named as part of the case.
The under fire Labour MP said: “An independent review has confirmed that I have not breached the Ministerial Code and there is no evidence to suggest I have acted improperly. Nonetheless, to avoid distraction for the Government, I have resigned as City Minister.”
Ms Siddiq, whose role as Treasury economic secretary included tackling corruption in UK financial markets, has been named in an investigation into claims her family embezzled up to £3.9billion from infrastructure spending in Bangladesh.
Sir Keir Starmer said he was accepting the resignation “with sadness”.
He added: “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.”
Emma Reynolds will take on the City Minister role following the resignation.
Tory leader Kemi Badenoch said: “It was clear at the weekend that the anti-corruption minister’s position was completely untenable.
“Yet Keir Starmer dithered and delayed to protect his close friend. Even now, as Bangladesh files a criminal case against Tulip Siddiq, he expresses ‘sadness’ at her inevitable resignation. Weak leadership from a weak Prime Minister.”
Ms Siddiq was alleged to have been involved in brokering a 2013 deal with Russia for a nuclear power plant in Bangladesh in which large sums of cash are said to have been embezzled.
The MP has also come under intense scrutiny over her use of properties in London linked to her aunt’s allies.
She was reportedly given an apartment in King’s Cross in 2004 by Abdul Motalif, an associate of members of the Awami League party in Bangladesh.
Ms Siddiq had also reportedly lived in a flat in Hampstead, north London, which had been given to her sister by lawyer Moin Ghani, who had represented the Hasina administration.
The Prime Minister’s ethics adviser said he found “no suggestion” of unusual financial arrangements for Ms Siddiq’s properties involving Awami League or Bangladeshi state – or that assets derived from “anything other than legitimate means”.
But despite the MP providing “considerable background info” to Sir Laurie Magnus that her affairs were in order, he said it is “regrettable” that she “has not at this point been able to provide conclusive documentation to this effect”.
Liberal Democrat Cabinet Office spokeswoman Sarah Olney MP said: “It’s right Tulip Siddiq resigned, you can’t have an anti-corruption minister mired in a corruption scandal.
“After years of Conservative sleaze and scandal, people rightly expected better from this government.”
This is the third high profile resignation for the Government since Labour came into power in July.
Sir Keir’s former chief of staff Sue Gray stepped back from her position after finding herself at the centre of a political storm.
Former Transport Secretary Louise Haigh was forced to quit in December after it emerged she pleaded guilty to a fraud offence a decade ago.