Key Points:

Prime Minister Helen Clark today accepted the resignation of Cabinet Minister David Benson-Pope saying he had lost credibility following the Setchell affair.

Mr Benson-Pope said he was going with regret, claiming he had not done anything wrong and taking a swipe at his critics.

Helen Clark made the announcement when she spoke to the media in Papakura late this morning.

Helen Clark told reporters: "I have today accepted his resignation as Minister of the Crown."

She said that his conduct had fallen short of the standards required of a Minister and his statements had impacted on his credibility.

Helen Clark said she had not spoken to Mr Benson-Pope this morning but her chief of staff and senior minister had spoken to him last night and made it clear what expectations were.

Mr Benson-Pope issued a statement to media minutes after Ms Clark's announcement.

He said he regretted his resignation but he had not done anything "inappropriate".

"I have had more than my fair share of personal abuse and attack from the opposition, their fellow travellers and parts of the media," Mr Benson-Pope said.

He said he is looking forward to spending time in his Dunedin electorate.

Asked if he could continue as an MP, Helen Clark said that would be a matter for Mr Benson-Pope and his electorate committee of Dunedin South.

Helen Clark also said that she would reshuffle her Cabinet after his resignation but gave no timeframe.

She will appoint acting Ministers to cover his portfolios of Environment and Social Development.

National leader John Key welcomed the resignation but said it was two days' late and should have come on Wednesday night.

He said he trusted his press secretary not to leak information to the Government and Mr Benson-Pope should have done the same.

Mr Key said the neutrality of the public service is important and needs to be protected.

"New Zealand is a small counrty and we need to draw on all the talent we have," he said.

Helen Clark said she accepted the reignation "because I think there is an issue of confidence now around the credibility of the sequence of statements that have been made".

She said the full story was not told. "I am disappointed because I expected more."

Mr Benson-Pope was under pressure after admitting he told Environment Ministry head Hugh Logan he could not work with communications manager Madeleine Setchell.

That admission yesterday in Parliament contradicts statements he made to reporters earlier in the week.

Setchell lost her job at the ministry because her partner is the chief press secretary to National Party leader John Key.

The role played by Mr Logan was scrutinised by Deputy State Services Commissioner Iain Rennie this afternoon.

Mr Rennie said that in his discussions with Mr Logan in preparing a July 20 briefing for the Minister of State Services, he "wasn't made aware of the full details of Mr Logan's recollections of his conversation with Mr Benson-Pope".

MR Rennie said: "Mr Logan volunteered his full recollections to me earlier this week. In hindsight, it would obviously have been desirable for this to have been made clear to me before this week.

"However, viewed in the context of all Mr Logan's actions in coming to a view about the potential conflict of interest, and how he should manage that issue, the most recent information does not alter my judgement that Mr Logan made his own decision."

Key quotes by Benson-Pope during the Setchell saga:

July 18 - Asked what he knew about the Setchell case:
"No, I don't know anything about the detail of that issue, nor do I think it's appropriate for me to get involved or actually say anything about employment matters."

July 20 - Asked whether he expressed his views on Ms Setchell's appointment to ministry chief executive Hugh Logan:
"In respect, nothing. Hugh knew my view was matters of employment were matters for the chief executive."

July 23 - Asked if Ms Setchell lost her job because of a hint from his office:
"No. She lost her job because the conflict of interest was identified by Mr Logan."

July 24 - Asked if he expressed an opinion on Ms Setchell's appointment:
"No I don't think I've got a role in that. I think the issue is an employment issue."

In the same interview he was asked if he would be comfortable working with her:
"I don't think that's an issue."

July 26 - Under questioning in Parliament about what he said to Mr Logan:
"I noted two things - that this was clearly an employment matter and his responsibility alone to manage, and secondly that from the point of view of my office I will likely be less free and frank in meetings with such a person. That was a statement of the obvious."

The latest allegations are not the first to be faced by Benson-Pope. Previous claimed incidents have included:

* Putting a tennis ball in a student's mouth in 1982

* Hitting a student in the face

* Entering a changing room while girls were showering in 1997

* Misleading Parliament in May 2005 by saying he was not aware of any complaints during his teaching career