Sir Sandy's departure comes in the wake of a leaked independent report by Sheila Masters of the accountants KPMG Peat Marwick into how the money was spent on the property, Haymes Garth, at Cheltenham, Gloucestershire.
Mr Rifkind is expected to make a statement in the Commons today after demanding the resignation of Sir Sandy, 53, during a heated face-to-face confrontation.
The report says that no one person could be held responsible for the huge expenditure on the five-bedroom official residence, which was £137,000 over budget. A major criticism was that management responsibility was not vested in one organisation or individual.
The spending included £33,000 on curtains and £27,000 on carpets and interior design. The report makes clear that a wide range of people, including staff at the Property Services Agency, civil servants and other senior RAF officers, could have stepped in.
But there is criticism of Sir Sandy's lack of judgement.
Sir Sandy was understood to have consulted a lawyer before going to see Mr Rifkind.
The unprecedented move to call for a senior officer's departure will prompt accusations of scapegoating from an already furious RAF and Tory MPs, who have complained that Sir Sandy cannot speak out in public and that the report has yet to be presented toParliament.
His exit will deprive him of the £2,850 pay rise flowing from yesterday's pay review body awards. As a four-star officer he would have qualified for a 3.2 per cent increase on his £95,051 a year salary.