Shaun Woodward, the former front bench spokesman for London, told William Hague that he "no longer supported the increasingly right-wing policies of the Conservative Party".
Mr Woodward accused Mr Hague of throwing away John Major's "sensible" wait-and-see policy on the euro and described the party's guarantee to cut the tax burden as "reckless".
He was backed by the Tory Reform Group, which counts among its members Kenneth Clarke, the former chancellor, Michael Heseltine, former deputy prime minister, Chris Patten, now a European Commissioner, and Mr Woodward's father-in-law Sir Tim Sainsbury, a former Tory minister.
The resignation provoked a furious response from the Tory leader, who wrote back to Mr Woodward and accused him of being motivated by a desire for self-advancement.
"If you were a man of honour, who valued his constituents as much as you say you do, you would resign your seat now, fight a by-election and give them the opportunity to judge who it is that represents their views and their instincts more accurately," said Mr Hague.
"The Conservative Party has not left you. You have left a party whose members have given you their loyal support. You have done so for reasons not of integrity or of principle, but for your own careerist reasons."
However, the Tory Reform Group fuelled speculation of a growing and acrimonious split by stating his "departure was a significant blow" and progressive Conservatives who shared his views were urged to save the party from "electoral suicide".
Mr Woodward was sacked as a party spokesman a fortnight ago after refusing to toe the line on the opposition to the Government's plans to repeal Section 28 - the legislation which bans local authorities from "promoting" homosexuality.
Since then the MP for Witney, in Oxfordshire, and former director of communications at Conservative Central Office, has appeared increasingly at odds with Mr Hague's policy agenda.
His defection, which comes as yet another serious blow to the party after a string of scandals and reversals, was met with bitterness and rancour from senior Tories.
Michael Ancram, the party chairman, was unable to disguise his fury: "I have never felt able to take him at face value," he said. "I am confirmed in this view by the speed and ease with which he has moved from protestations of firm loyalty to the Conservative Party and its policies last week to his self-promoting defection today.
"He has obviously been planning this move with the Labour Party for some time with the intention of causing maximum damage to the Conservative Party. It is surely right that his constituents should make the final judgment."
Tory peer Lord Tebbit, was also scathing: "This shows how perceptive William Hague was and how right he was to sack him. The man is not a Conservative and appears to be more attracted to europhilia and homosexuality than to Conservatism."
Speaking from his London home last night, Mr Woodward told the Independent on Sunday: "I have no intention of standing down. I have not changed. I'm still the Tory the people of Witney elected. It is the Tory party that has changed."
He said he had been given no guarantees by the Labour party and had no idea what his future held. "All I knew was I couldn't stand on a platform of dotty and illiterate economic policies and divisive social policies."
Mr Woodward arrived at his home earlier yesterday accompanied by his wife Camilla. He was hugged by Ann Keen, Labour MP for Brentford and Isleworth, who acted as the go-between and organised his defection. Mrs Keen said he had held "several meetings with Tony Blair" in which he had discussed his concerns.
Mr Blair yesterday welcomed Mr Woodward's move. The Prime Minister said: "The qualities I most admire in any politician are courage, principle and judgement."Reuse content