By Ian Dunt Follow @IanDunt
Liam Fox has resigned as defence secretary after a week of speculation about his future.
Downing Street insisted it had not put pressure on Mr Fox, who resigned of his own accord just days before the publication of a report into his relationship with Adam Werritty.
"I mistakenly allowed the distinction between my personal interest and my government activities to become blurred," Mr Fox wrote in his letter of resignation.
"The consequences of this have become clearer in recent days. I am very sorry for this."
He added: "I have repeatedly said the national interest must always come before personal interest. I now have to hold myself to my own standard."
Mr Cameron replied: "You can be proud of the difference you have made in your time in office, and in helping our party to return to government.
"You and Jesme [Mr Fox's wife] have always been good friends, and I have truly valued your support over the years."
Speaking alter, he told reporters: "I quite understand why Liam Fox decide to resign but I'm sorry to see him go. I will be announcing a replacement very shortly."
Philip Hammond was handed Mr Fox's job.
Labour's shadow defence secretary Jim Murphy called the resignation "unavoidable and inevitable".
He added: "Throughout these events I haven’t called for Liam Fox’s resignation but just the full truth.
“Governments must have rules and ministers must have standards. Liam Fox fell foul of the standards and he broke the rules."
As a former leadership rival and darling of Conservative backbenchers, Mr Fox could prove a potent threat from the backbenches, where he will be able to communicate an unsullied Conservatism in contrast to the compromises of coalition government.
One of the few comprehensively educated Cabinet secretaries in the coalition, Mr Fox rose rapidly through the Conservative ranks to become a senior whip during John Major's administration.
He came third in the 2005 leadership election, just after David Davis.
Mr Cameron brought his old adversary into Cabinet after the 2010 general election but relationships were fraught due to personal differences and persistent leaks from the Ministry of Defence (MoD), which many journalists presumed came from the defence secretary himself.
Mr Werritty, a long-time associate of Mr Fox who accompanied him on 18 official trips in as many months, was interviewed by civil servants again today, as news reports emerged that he was funded by shadowy right-wing lobbyists.
A Times report this morning suggested that a pro-Israeli lobbyist, a Washington-linked venture capitalist and a corporate intelligence company with strong interests in Sri Lanka funded Mr Werritty's various trips with Mr Fox, allowing him to stay in five-star luxury around the world.
Some of the £147,000 poured into a not-for-profit company Mr Werritty set up was reportedly used for the trips.