Louise Haigh has quit as transport secretary following details of a past conviction for fraud being revealed.
She has admitted that, a decade ago, she told police she had lost her work mobile phone in a mugging, but later found it had not been taken.
She was given a conditional discharge, after pleading guilty in court in 2013, before she was an MP.
Haigh’s is the first resignation from Sir Keir Starmer’s government and the 37-year-old said her appointment as the “youngest ever” female Cabinet member “remains one of the proudest achievements of my life”.
However, it raises questions over the PM’s judgement in appointing someone with a spent conviction to his Cabinet, having previously attacked the Conservatives during the Partygate era, saying “lawbreakers can’t be lawmakers”.
In 2013, Haigh was 24-years-old and working as a public policy manager for the insurance company Aviva.
Following reports by Sky and The Times on Thursday, Haigh issued a statement, explaining she made a police report after a “terrifying” mugging in London.
She said she reported the phone as one of a number of items she believed had been stolen, and was issued with a new work phone.
Some time later, she discovered the handset was still in her house, and she switched it on, which “triggered police attention” and she was called in for questioning.
“My solicitor advised me not to comment during that interview and I regret following that advice,” she said, and the matter was sent to magistrates.
Haigh said she pleaded guilty to making a false report to police at a magistrates’ court, six months before becoming an MP in the 2015 election, and received a discharge – the “lowest possible outcome”.
She added: “Under the advice of my solicitor I pleaded guilty – despite the fact this was a genuine mistake from which I did not make any gain.”
On Friday she sent her resignation letter to Sir Keir Starmer, saying she did not want to become a distraction and Labour would be “best served by my supporting you from outside government”.
In response, Sir Keir said Haigh had made “huge strides” as transport secretary to take the rail system back into public ownership, and thanked her for her work.
Whitehall sources told the BBC that the transport secretary declared her discharge on appointment to the shadow cabinet in 2020, when the Labour Party was in opposition.
Some are questioning why Sir Keir gave her the job when it seems he had been informed of the specifics of this case when Haigh joined his shadow cabinet.
Haigh had been responsible for one of the government’s flagship policies in the re-nationalisation of the country’s rail network under Great British Rail.
However, she had also been the first cabinet minister the PM had had to publicly rebuke, over remarks about P&O Ferries last month.
Haigh described P&O Ferries as a “rogue operator”, last month and urged people to boycott the company, sparking a row with the ferry company’s parent operation DP World.
When they threatened to boycott a major government investment summit in response, Sir Keir pulled suport for her, saying Haigh’s comments were “not the view of the government”.
Haigh has been the MP for Sheffield Heeley since 2015 and held a number of shadow ministerial and shadow cabinet roles before becoming transport secretary when Labour won the election in July.
A Conservative Party spokesman said: “Louise Haigh has done the right thing in resigning. It is clear she has failed to behave to the standards expected of an MP”.