The resignation came ahead of a no-confidence motion against him by opposition members, who were calling for Karunanayake's removal for conflict of interest.

Karunanayake, a former finance minister, said he would continue in the party as an ordinary member of parliament.

In a statement after announcing his resignation, he told parliament, "I have never done anything wrong, and I resign with pride to create a new political culture in Sri Lanka and ensure good governance."

He told parliament that one of his daughters leased the apartment through the son-in-law of the former central bank governor Arjuna Mahendran, and that the money had already been repaid.

Karunanayake said he was stepping down to protect the government, which came into power in 2015 after vowing to fight corruption in the previous regime.

Controversial bond auction

Karunanayake had testified before a commission ordered by President Maithripala Sirisena to investigate a controversial bond auction that lost the state millions of dollars because of rising borrowing costs over the last two years.

The minister admitted his family had dealings with the controversial bond dealer, Arjun Aloysius, but insisted he was not involved in bond dealings. Aloysius is being investigated for allegedly having inside information about bond transactions with the central bank.

Aloysius is the son-in-law of former central bank governor Arjuna Mahendran, who was sacked in April following accusations of misconduct surrounding alleged favors to his relative.

Prime Minister Ranil Wickremesinghe said the decision reflected well on his government.

"Today, the minister (Karunanayake) has shown that this government will not interfere in the investigations," Wickremesinghe said.  

"Even when he is not guilty, he has shown he is stepping down on a matter of principle."

Karunanayake had been appointed foreign minister on May 22. Until then, he had been finance minister since January 2015.

ap/jm (Reuters, AP, AFP)