His resignation comes as a result of reports in a Sunday newspaper alleging he tried to pay a prostitute to go abroad to avoid a scandal.

Mr Archer said in a statement he had "foolishly" allowed himself to fall into a trap to offer money to Monica Coghlan, a prostitute whom he said he had never met.

"For that lack of judgement, and that alone, I have tendered my resignation to the prime minister," he said.

Secret photographs

Miss Coghlan contacted Mr Archer to tell him one of her clients was going to release information about an alleged meeting between them.

When he realised the story was in the hands of the press, Mr Archer agreed to help pay for her to go abroad and avoid being questioned by journalists.

An aide acting on behalf of Mr Archer was secretly photographed by the News of the World handing over the money at Victoria Station in London.

Mr Archer is said to have consulted with Party Chairman Norman Tebbit before informing the Prime Minister, Margaret Thatcher, who was said to be "extremely gracious and kind" over his decision.

The prime minister is due to meet with senior party members to discuss the matter on Monday.

Mr Archer had held the post of deputy chairman for just over a year.

Last night he said he was very sad to leave and it had been "very thrilling, as well as a privilege" to hold the position.

This is the second time Mr Archer's career has been tarnished. In 1974 he was forced to resign as an MP after a business deal with a Canadian company fell through, leaving him with massive debts.

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