John Della Bosca, last week touted as a front-runner to take over as NSW premier, had all leadership hopes dashed on Monday night when he resigned after an alleged affair with a 26-year-old woman was made public.
In a statement to The Daily Telegraph, the woman alleged she had a six-month relationship with Mr Della Bosca that ended in August.
The woman said she ended the affair because Mr Della Bosca had failed to leave his wife.
Mr Della Bosca's office issued a statement early on Tuesday saying he would stand down from his ministerial and parliamentary duties.
"Tonight I have advised the premier of my intention to resign as a minister and leader of the government in the NSW legislative council," he said in the statement.
"At no time did I breach my duties as a Minister or Member of Parliament.
"I took the decision to resign following a series of questions put to me about my personal life.
"I do not want this matter to be a distraction to a government which is working hard to improve services.
"I regret some personal decisions I made and I am deeply sorry for the hurt I have caused my family."
Mr Della Bosca, who had been a minister since 1999, said he was proud of the government's achievements and that it was a privilege to have served the people of NSW.
He had been named along with Planning Minister Kristina Keneally, among others, as leadership aspirants after speculation about Nathan Rees's future as premier intensified in recent weeks ahead of a caucus meeting on Tuesday.
Mr Della Bosca told the newspaper he refused to discuss his marriage to federal MP Belinda Neal, or any other personal matters.
He denied the woman's claims that he had cancelled work plans to be with her, and that he had skirted security protocols at Parliament House.
Opposition leader Barry O'Farrell says the sex scandal that has felled Mr Della Bosca is just another episode in a tawdry government soap opera.
"On the very day the community was hoping for an end to the soap opera of the Rees government it's been delivered yet another tawdry, tacky episode that can only further distract the state government from dealing with the problems families and small business are facing across NSW," he told ABC radio.
John Watkins, who held the transport and finance portfolios in the Iemma government, said news of Mr Della Bosca's resignation was sad for all involved.
"Gee there's a lot of sadness in this for Della's family, for the young woman, and for Della Bosca as well and all the people who know them and love them," Mr Watkins told ABC Radio.
He added that Mr Della Bosca has worked "very hard" for NSW.
"The work he did when he was disabilities minister was extraordinary and there's many people out there in that sector - parents that have been caring for children with disabilities for a long time - that really think very highly of John Della Bosca and the compassion he showed," he said.
From a political perspective, Mr Watkins said Mr Della Bosca's resignation provides an "opportunity" for Mr Rees.
"I think the premier will see this as an opportunity to clear the air," he said.
"A lot of those rumours that have been swirling round over recent weeks which had Della at the centre will drift away I think and it gives him the opportunity for an extensive reshuffle."
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