Mark Harper has resigned as immigration minister after discovering his cleaner of seven years was working in the UK illegally.
The Tory MP insisted he had not broken the law but accepted that his failure to check her status more thoroughly meant he should step down.
Prime Minister David Cameron said he accepted "with regret" the resignation - which was applauded by all sides at Westminster as a principled decision.
But Labour said the embarrassment also highlighted flaws with the proposed crackdown on employers taking on illegal immigrants, which Mr Harper had been leading through Parliament.
Mr Harper said it was that role which led him to double check the cleaner's right to work in the UK with immigration officials - who informed him on Thursday that she was here illegally.
"Although I complied with the law at all times, I consider that as Immigration Minister, who is taking legislation through Parliament which will toughen up our immigration laws, I should hold myself to a higher standard than expected of others," he told Mr Cameron in his resignation letter.
"I have also considered the impact on my Parliamentary colleagues, the Government and you. I have always believed that politics is a team game, not an individual sport.
"Under the circumstances, I have therefore decided that the right course is for me to return to the backbenches. I am sorry for any embarrassment caused."
Mr Cameron said it was a typically "honourable" decision by Mr Harper, the MP for Forest of Dean and that he hoped to see him make a rapid return to the ministerial ranks.
He has been replaced as Immigration Minister by James Brokenshire.
Mr Harper said he took copies of the cleaner's passport and a Home Office letter stated she had indefinite leave to remain in the UK when he took her on to clean his London flat in 2007.
He expressed regret that he did not check their veracity with officials either when he was appointed a cabinet minister in 2010 or took on the immigration brief at the Home Office in 2012.
"In retrospect, I should have checked more thoroughly," he told the PM.
Prompted to do so by being put in charge of the legislation - which doubles the fine for employers caught taking on an illegal worker to £20,000 - he was unable to find the documents, he said.
When the cleaner produced new copies, he passed them to immigration officials who informed him that the woman should not in fact be in the country.
Mr Cameron applauded Mr Harper's stated desire to avoid causing the Government embarrassment.
"You have taken an honourable decision," he wrote in his reply.
"You will be greatly missed, and I hope very much that you will be able to return to service on the frontbench before too long."
Home Secretary Theresa May praised Mr Harper as an " excellent" minister who could be "proud of the role he has played in sharply reducing immigration to Britain".
The MP was severely criticised recently for spearheading the Government's "go home" ad van warning to illegal immigrants - which was later abandoned amid an outcry.
Liberal Democrat Home Office colleague Norman Baker said he was sorry to see the " competent and friendly minister" go and Mr Harper was warmly lauded by Home Affairs Committee chairman Keith Vaz.
The Labour MP said the "excellent" minister left "an impressive legacy" and would be missed.
But while s hadow immigration minister David Hanson said he respected the resignation, he added that it highlighted the problems faced by employers and landlords under the coalition crackdown.
"As immigration minister he has argued in Parliament for landlords to be required to carry out checks on every tenant, and he is responsible for the helpline for employers to ring up to double check the immigration status of their employees," he pointed out.
"We have called for the landlord scheme to be piloted, and the employer helpline to be better resourced exactly because this can be complex for employers and landlords."
"He has... shown himself to be a decent man in his resignation and I wish him well for the future but perhaps once again the Government need to think very carefully about how they approach this issue as it's clear there are limits to the effectiveness of relying on employer and landlord checks to address illegal immigration."
Mr Harper said he had been "mindful of my legal and financial obligations" when he took on the cleaner and sought verification of her immigration status despite having no legal requirement to do so.
On the requirements imposed on employers by the Immigration Bill, he pointed out that "we do not require them to be experts or spot anything other than an obvious forgery".
In a limited reshuffle following Mr Harper's departure, Karen Bradley moved from the whips office to the Home Office to fill Mr Brokenshire's junior ministerial post.
John Penrose was promoted within the whips office to replace Ms Bradley and Harriet Baldwin was brought into the Government ranks as a junior whip.
Mr Cameron has faced Labour attacks in recent days over his failure to promote women.
The case has echoes of that of Labour peer Baroness Scotland who was fined £5,000 in 2009 when she was Attorney General over her hiring of an illegal immigrant as her housekeeper.
She apologised for the "technical breach" of failing to take copies of the documents shown her by the woman and was allowed to keep her job by then prime minister Gordon Brown.
Baroness Scotland had helped form the law under which she was censured.
Shami Chakrabarti, director of Liberty, said: "It's a bitter irony that a minister should fall foul of a mad and toxic immigration debate that his own Government has fuelled and stoked.
"The vile Immigration Bill would turn landlords and vicars into border police, checking people's status before offering them shelter or marriage services.
"It's a race relations nightmare. It's the nasty immigration politics and not the politician that should go."
The National Health Action Party (NHA) - formed by health professionals concerned about NHS reforms - also seized on the case to highlight concerns about the legislation.
It imposes charges on migrants who require NHS accident and emergency treatment and other treatment in a bid to reduce so-called "health tourism".
" If the Immigration Minister can't even check his own cleaner is here legally, how does he expect hard-pressed NHS staff to check patients?" an NHA spokeswoman said.