Labour Party leader Phil Goff says Darren Hughes had little choice but to resign as an MP.
Mr Hughes, 32, had been on leave from Parliament since Wednesday, when it was revealed he is the subject of a police investigation, following a complaint from a man, aged 18.
The complaint relates to an incident at the Wellington home of Mr Hughes on 2 March. It is understood to be of a sexual nature.
Mr Goff accepted Mr Hughes's resignation on Friday, but said it is important not to prejudge the outcome of the case.
Party president Andrew Little said Mr Hughes had acted in the best interests of the party. He said the facts of the matter were still not known, but rumour and speculation were spreading and the party was suffering as a result.
Mr Hughes has denied any wrongdoing, but says his position has become untenable.
Mr Hughes was promoted to be Labour's education spokesman in February. He was also the party's senior whip.