Andrew MacKay apologised "profusely" after he was sacrificed by the Tory leader who described the claims as unacceptable.
Mr MacKay, who is married to Bromsgrove MP Julie Kirkbride, claimed more than £1,000 a month to cover mortgage interest payments on their joint flat near Westminster.
At the same time, Ms Kirkbride used her own second homes allowance to claim more than £900 a month towards the home loan on their family home in Bromsgrove.
Mr MacKay said it had never previously occurred to him there was anything wrong with the arrangement until it was taken up with him by a Conservative audit of claims this week.
He said the designation of their homes had been suggested to them by the House of Commons Fees Office. The arrangement had been in place for "eight or nine years".
"This was all transparent, it was all approved and frankly until it was drawn to my attention it did not occur to me that it didn't pass the 'reasonableness' test," he said today.
"I must say when it was drawn to my attention my first reaction was that the right thing to do was to resign my post, which I did very first thing today with David."
Until this morning he was the Tory leader's Parliamentary aide.
He added: "Looking back now, it does look strange, I have clearly made an error of judgment for which I profusely apologise and I've done what I think is the right thing."
The MP promised to pay back however much money an internal Conservative panel feels is appropriate.
Mr Cameron said the arrangement had been discovered by the party after Mr MacKay submitted his claims for examination.
He said: "The examination revealed a state of affairs which I don't think is acceptable. He will go before a scrutiny panel to determine how much of this needs to be repaid."
The Tory leader described the whole expenses affair as an "appalling scandal" and admitted the scandal had damaged his party.
"Clearly all parties have been damaged by this. We have to put our hands up," he said.
Ms Kirkbride was previously a political correspondent for the Daily Telegraph, which has sparked the latest furore over expenses by printing leaked details of claims.
In a report on its website, the Telegraph said it had been planning to disclose Mr MacKay's claims tomorrow, although the MP said he had not been contacted by the newspaper.
Last financial year, Mr MacKay claimed a total of £23,083 under the so-called Additional Costs Allowance, while Ms Kirkbride claimed £22,575.
According to Parliamentary records, they also claimed for each other's travel costs. Ms Kirkbride took £1,392 under the allowance to meet spouse travel, while Mr MacKay claimed £408.
He said today he no longer claimed for a second home.
From this financial year, he had taken up the much cheaper London allowance instead, given his constituency's proximity to the Commons.
Ms Kirkbride said today her own expenses claims were "permissible and reasonable" and that she understood the public's anger.
In a statement, she said her husband's resignation as an aide to Mr Cameron had been "the right and honourable thing".
"For my part, I believe that my own expenses are both permissible and reasonable and I will make my expense details available for scrutiny by my constituents as soon as possible," she said.
"Parliament is quite rightly coming under intense scrutiny on this issue.
"As Bromsgrove MP for 12 years I want to assure my constituents that I understand the public anger and I hope Andrew's prompt action today demonstrates to people how seriously the Conservative Party and its MPs take these matters."
As Mr Cameron's senior Parliamentary adviser, it was Mr MacKay who was despatched to Strasbourg last year to deliver the party leader's tough new demands for transparency over their expenses.
Earlier this year, Ms Kirkbride backed a controversial attempt in the Commons to keep MPs' home addresses a secret by removing the requirement for election candidates to publish them.
In March, she told the Birmingham Post: "There are people who might have a grievance or a fixation. I'd feel a lot happier not making my home address freely available.
"That seems perfectly reasonable to me, in terms of personal safety and well-being."
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