His resignation is particularly damaging to the White House as he is the second senior member of the administration to be forced out in 10 days. It also undercuts the the presidential couple's weekend effort to deny involvement in dishonest business practices in Arkansas in the 1980s.
Mr Hubbell said in a statement: 'I believe my continued service will not be as effective as it has been; that the distractions on me at this time will interfere with my service to the country and the President's agenda; and that my family, although totally supportive, is being harmed.'
For many years one of the Clintons' closest associates, Mr Hubbell is accused of overcharging clients of the Rose Law Firm in Little Rock, where he was a partner. Announcing his departure, the Attorney-General, Janet Reno, said: 'I do not believe he has done anything wrong.'
Mr Hubbell's row with the firm revolves around expenses he is alleged to have paid himself without providing adequate documentation.
He also represented a parking meter company owned by his brother-in-law, Seth 'Skeeter' Ward. Contrary to the firm's practice, he agreed it would be paid only if he won the case. When he lost the firm was left with a bill of dollars 1m for unpaid work and expenses.
A member of the Rose Law Firm is quoted by the Wall Street Journal yesterday as saying Mr Hubbell has already missed one deadline to provide information about the money.
A chunky former college football player, Mr Hubbell, 46, has been a controversial figure ever since he came to Washington. A golfing partner of President Bill Clinton, he was considered the White House's man in the Justice Department.
Although the reasons for Mr Hubbell's resignation are not connected with allegations about Whitewater, they will reinforce the public perception that the Clintons and their closest friends were involved in shady dealings. In particular, Hillary Clinton's reputation is being seriously damaged by revelations about the Rose Law Firm, where she was a partner.
Ten days ago Bernard Nussbaum, another lawyer close to Mrs Clinton, resigned as White House counsel after he was accused of interfering with the investigation into the Clintons' business activities in Little Rock.
Last night Mrs Clinton sought to play down impact of the Whitewater affair. She told a Denver audience: 'We made a bad investment, we lost money and there's really not much more to add to it.'
Mark Lawson, page 16Reuse content