Mark Oaten, 41, resigned as the party’s home affairs spokesman after the claims about a lengthy fling with a 23-year-old man were put to him by a tabloid newspaper.
His resignation is another blow to the party, coming just two weeks after Charles Kennedy was forced from the leadership after admitting he had a drink problem.
Last week Oaten, who is married with two daughters, quit the leadership race, apparently because he had the support of only one of his parliamentary colleagues.
According to the News of the World, the relationship with the rent boy lasted through 2004 and into 2005 with a long series of secret meetings. The newspaper claimed Oaten had regularly paid £80 a time for sex with the man, but on one occasion had a sex session with him and another male prostitute for £140.
It also alleged that on one occasion Oaten had asked the man to dress in a football strip.
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The relationship ended in February last year. Oaten had kept his identity as a leading politician secret, but the rent boy discovered who he was. The newspaper quoted the man as saying Oaten had requested three-in-a-bed sex: “He is a very troubled man leading a very dangerous double life.”
In a statement, Oaten apologised for the “embarrassment” he had caused to his family and party. “I have stood down as home affairs spokesman for the party.” he said.
“I would like to apologise for errors of judgment in personal behaviour and for the embarrassment caused, firstly to my family but also to my friends, my constituents and my party.”
Oaten, a rightwinger, was one of the so-called “Orange” faction — economic liberals who call for low taxes and tough law and order policies. But he withdrew from the leadership race on Thursday after it emerged he had the support of only one of the 62-strong parliamentary party, Lembit Opik. He was the youngest leadership contender and seen as a Kennedy loyalist.
Before entering parliament for Winchester in 1997, Oaten was a councillor and worked as a lobbyist with a number of Westminster public affairs firms.
When he quit the leadership race he said in his resignation statement: “Next week I’ll be giving some thought to where I go politically and giving my thoughts on the future of the party.”