UK Culture Secretary Maria Miller has resigned after a long-running dispute over her property expenses.
She told David Cameron the row over her expenses had "become a distraction from the vital work this Government is doing".
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The Prime Minister said he was "sad" at the circumstances of her departure and hoped she could make a return "in due course" but was accepting her resignation.
It follows days of mounting public and political pressure on the MP to quit and signs she was losing support among Tory colleagues despite Mr Cameron's backing.
In her resignation letter, the Basingstoke MP told Mr Cameron she was "very grateful" for his personal support.
Nicky Morgan has been installed as Women's Minister in the wake of Miller's resignation, while Sajid Javid has become the first Asian Tory man in the cabinet after being made Secretary of State for Culture, Media, Sport and Equalities.
"But it has become clear to me that the present situation has become a distraction from the vital work this Government is doing to turn our country around," she added.
She defended her work on press regulation - which allies have suggested has resulted in a media "witch hunt" against her.
"Of course, implementing the recommendations made by Lord Justice Leveson on the future of media regulation, following the phone hacking scandals, would always be controversial for the press," she wrote.
"Working together with you, I believe we struck the right balance between protecting the freedom of the press and ensuring fairness, particularly for victims of press intrusion, to have a clear right of redress."
Mr Cameron told her it was "important to be clear that the Committee on Standards cleared you of the unfounded allegations made against you, a point which has been lost in much of the comment in recent days".
The standards committee ordered her to repay £5,800 in overclaimed mortgage interest and say sorry on the floor of the House - an apology which has been widely criticised for its tone and brevity.
"As you leave the Government, you should be proud of your service on the Frontbench and in Opposition," Mr Cameron said - including steering through gay marriage and press regulation.
"I am personally very grateful for the support you have always given me, and which I am sure that you will continue to give.
"I hope that you will be able to return to serving the Government on the Frontbench in due course, and am only sad that you are leaving the Government in these circumstances."
Labour MP John Mann, who made the allegations against Mrs Miller which triggered the standards investigation, said: "About time too."
He told BBC Radio 4's Today: "Maria Miller should have resigned immediately and when she didn't resign, Mr Cameron should have shown a bit of leadership and sacked her."
He said the case had shown the present system - which saw a cross-party committee of MPs dramatically reduce the sum an independent watchdog said Mrs Miller should repay - was "dead and buried".
"I would like to see David Cameron announce today at Prime Minister's Questions that that system is going to go immediately and there will be no more self-regulation of MPs by MPs."
A Tory local councillor in Mrs Miller's Basingstoke constituency said he was "disappointed that it has come to this but on the other hand we have achieved some sort of closure".
Sven Godesen, who was among those who had called on her to repay the originally-recommended £45,000 or quit, said he hoped she would stay on as MP for the Hampshire town.
"She was and is a good constituency MP and we will all be very happy in 2015 to work to see that she does get re-elected."
Shadow home office minister Steve Reed said on Twitter: "Cameron's judgment in question for supporting Maria Miller as she resigns over expenses shame."
A Labour Party spokesman said: "It is welcome that Maria Miller has finally done the right thing. By resigning, she has recognised that the public expect and deserve the highest standards from politicians.
"Labour said all along that you cannot have one rule for a Cabinet minister and one rule for everybody else.
"That it came to this raises questions for David Cameron, whose judgment has been found wanting. Yet again he has shown himself to be out of touch and a prime minister who only stands up for one of his own."
Education Secretary Michael Gove said he was "saddened" by the resignation but suggested it had become inevitable as the pressure intensified.
The entire political class had to accept it as a "warning" that the expenses issue remained "raw" with voters, he said, several years after the scandal over Westminster pay and perks exploded.
Mr Gove defended the Prime Minister's decision to give his warm public backing to the embattled minister, insisting such loyalty was a virtue and said Mrs Miller had not been forced out.
And the former journalist dismissed allegations by Mrs Miller's allies that she was the victim of a media witchhunt.
Asked if he had been surprised by the news, he told Today: "I was saddened. Over the course of the last couple of days the pressure grew more and more intense and some of the criticisms directed at her were very personal.
"I know that it must have been hurtful."
"My take on these things is that this is a judgment on the political class overall in Westminster and it is a warning to us to take these issues incredibly seriously and to recognise that there is a question of public trust in the political process and the capacity for politicians to police themselves which requires to be addressed.
"That seems to be the most important thing."
He rejected suggestions Mr Cameron had shown "flawed" judgment.
"I think that loyalty, that desire to think the best of those who work with him, is a virtue," he said.
"It can be viewed by some as a weakness but it is not a weakness in my eyes, it is a strength."
He went on: "I don't think his judgment has been flawed; hindsight is a wonderful thing.
"The Prime Minister's attitude throughout has been governed by the basic human decency that is his hallmark."
There were "any number of other occasions" in foreign and economic policy where he had acted decisively.
The resignation came hours before Mr Cameron faces questions in the Commons and a meeting of Conservative backbenchers, a growing number of whom had joined criticism of Mrs Miller.
But Mr Gove denied that was the reason for her departure.
"My understanding is that this was Maria's decision.
"I don't think there was any desire on the part of anyone to force or compel her to make a decision to any timetable."
Reforms were needed to the system but there was no "instant answer" because the problem went deeper than changes to arrangements into wider distrust of politicians, he said.
"It goes beyond simply a technical fix to this or that committee.
"The political class do need to recognise that the level of public feeling about these issues is still very raw. We do need to appreciate that and reflect on it.
"I think for people close to Maria, they will have felt for her."
Mrs Miller's parliamentary aide Mary MacLeod yesterday texted colleagues asking them to speak up in her boss's favour, and described newspaper coverage of the issue as "a witch hunt where they don't like the work that Maria has done on Leveson and gay marriage".
But Mr Gove rejected that view.
"For people who are close to Maria, they will have felt for her.
"I wouldn't criticise the press. I was a journalist and I wouldn't go there."
New political party Left Unity called off a planned protest outside Downing Street and called for the former minister to face a full criminal investigation into her expenses.
Principal speaker Bianca Todd said: "Maria Miller's resignation isn't the end of this. She must face a full criminal investigation. This culture of corruption in Parliament has to end."
However, David Cameron is facing a major backlash after it emerged he has put a man in overall charge of women's issues.
Although Nicky Morgan has been installed as Women's Minister in the wake of Maria Miller's resignation, Downing Street confirmed that new Culture Secretary Sajid Javid will retain final responsibility for the brief.
The number of female Cabinet members is also lower now than it was when the coalition came to power.
Mr Cameron failed to head off criticism about the lack of gender balance in his government despite promoting Ms Morgan and bringing in Andrea Leadsom as Economic Secretary to the Treasury.
While Ms Morgan will attend Cabinet, she will not have full voting rights - meaning the only female full members of Mr Cameron's top team are Home Secretary Theresa May, International Development Secretary Justine Greening and Northern Ireland Secretary Theresa Villiers.
In 2010 there were five women members of the Cabinet, although at that time no others had the right to attend the meetings.
Number 10 stressed that the mini-reshuffle meant there were four ministers rather than three with responsibility for women's issues - Mr Javid, Ms Morgan, Helen Grant and Liberal Democrat Jenny Willott.
But the aides confirmed: "Equalities and women is still in the Department for Culture, Media and Sport at secretary of state level."
They were unclear whether there will still be a Commons questions session focusing on women and equalities, and which minister would respond.
Gloria De Piero, shadow minister for women and equalities, said: "David Cameron's decision to replace Maria Miller with Sajid Javid means that there is now no full member of the Cabinet speaking for women.
"There are now just three women running Government departments out of a possible 22, demonstrating that when it comes to women, it's out of sight, out of mind for this out-of-touch Government."
Daisy Sands of gender rights campaign group The Fawcett Society said: "The women's equality brief has sat, variously, in the then Department for Trade and Industry, the Home Office and most recently the Department for Culture, Media and Sport.
"It now rests with someone who is not a full member of the Cabinet, though she will have the right to attend meetings.
"Ahead of the 2010 General Election, the Prime Minister pledged to make a third of his Ministerial List female by the end of his first term. With just a year to go, he is governing the country with a Cabinet almost 90% male."
The decision to give Ms Morgan ministerial responsibility for equalities was criticised in light of her opposition to gay marriage.
PinkNews publisher Benjamin Cohen said: "It is unfortunate that the new Minister for Women opposes the rights of some women, lesbians, to have the right to marry.
"I hope that in her new role, Nicky Morgan will represent all women regardless of the gender of the person they love."