Labour MP Darren Hughes resigned from Parliament yesterday as witness reports emerged of a distressed, naked man on the street near Mr Hughes' Wellington home on the night a youth complained to police about an incident of a sexual nature.

But Labour leader Phil Goff said the reports had nothing to do with the resignation, nor was the move any indication of Mr Hughes' guilt.

Mr Hughes said his position had become untenable, and acknowledged that it could damage the party.

"I am not prepared to see my party distracted in the lead-up to a critical election."

He maintained he had done nothing illegal as police continue to investigate events in the early hours of March 2 in the suburb of Hataitai.

The investigation followed a complaint from an 18-year-old student.

One witness told 3 News a flustered man, matching a description of the complainant, was near the Mt Victoria tunnel around 5 o'clock on the morning in question.

"He was standing there with one hand over his private parts and the other hand with his thumb out, hitch-hiking," the witness said.

"I thought, 'Oh boy, the husband's come home and it's a quick exit'."

A second witness said he thought it was a practical joke and "someone had stolen his clothes".

Mr Hughes said he remained confident the legal process would find that he had done nothing wrong.

But he fired a shot at the scrutiny to which politicians are subjected: "Although people are commonly thought to be innocent until proven guilty, it has become clear to me that this doesn't apply in the political arena."

Mr Goff's handling of the issue has led to criticism of his leadership, and some in Labour have questioned whether Mr Hughes was being protected, to the increasing detriment of his party, because he was close to deputy leader Annette King, in whose house he boarded.

Mr Goff said yesterday that Ms King agreed with the resignation.

"I think she accepts, as I do, that it's best for Darren, and best for the institution of Parliament, that he stand aside by resigning, so that this matter can be cleared up, one way or another, and then he can get on with his life."

Mr Goff stood by his decision not to accept Mr Hughes' resignation earlier, but said the scrutiny since the complaint was made public had made that difficult.

The timing has raised questions about whether further damaging information is about to come to light or Mr Goff was warned of a leadership plot against him.

Although Mr Goff was under some pressure from his caucus to limit the damage and at least strip Mr Hughes of his portfolios, Labour sources last night discounted any possibility of a leadership change and said there had been no real demand for Mr Hughes to resign.

Labour Party president Andrew Little said it was disappointing to lose Mr Hughes, but it was the right decision.

"My feeling was that the issue was starting to cause damage to the Labour Party. I think Darren knew that. He's acted in the interests of the Labour Party and I'm certainly grateful for that."

Some of Mr Hughes' caucus colleagues last night told of their regret at his departure.

David Parker said it was "terribly sad, but probably the right decision".

Trevor Mallard said Mr Hughes had "clearly done the right thing for him ... He is a young man who is exceptionally talented and he'll be a sad loss to the Labour Party and to Parliament."

Asked if Mr Hughes could come back if he was cleared of any wrongdoing, Mr Mallard said: "Nothing is forever, but clearly not this year."

One MP, who did not want to be named, said the resignation showed "none of us are bigger than the party" and was a reminder of how brutal politics could be.

"I'm gutted, really. Darren was enormously popular."