Defence Secretary Liam Fox tonight apologised for making a mistake in allowing "distinctions to be blurred" in his working relationship with former flatmate Adam Werritty.
In a statement released on his return to London, Dr Fox conceded that his "frequent contacts with him may have given an impression of wrongdoing".
The beleaguered Tory also accepted that their close ties my have given outsiders the "misleading impression that Mr Werritty was an official adviser rather than simply a friend".
He said: "I accept that it was a mistake to allow distinctions to be blurred between my professional responsibilities and my personal loyalties to a friend. I am sorry for this.
"At no stage did I or my department provide classified information or briefings to Mr Werritty or assist with his commercial work - let alone benefit personally from this work.
"Nevertheless, I do accept that given Mr Werritty's defence-related business interests, my frequent contacts with him may have given an impression of wrongdoing, and may also have given third parties the misleading impression that Mr Werritty was an official adviser rather than simply a friend.
"I have learned lessons from this experience."
Dr Fox has apologised to Prime Minister David Cameron, who is poised to make a decision on his fate tomorrow after receiving a report into the controversy.
The Defence Secretary added: "I accept that with the benefit of hindsight I should have taken much greater care to ensure that any meetings with Adam Werritty, at which defence and security related issues were raised, were properly attended by officials and recorded - to protect myself and the Government from any suggestion of wrongdoing.
"I have apologised to the Prime Minister and agreed with my permanent secretary to put in place new procedures to ensure that this does not happen again."
Dr Fox insisted he will "answer all questions in the House of Commons" tomorrow following demands by Labour for him to make a full statement.
It follows a raft of allegations over recent days about the unusual involvement Mr Werritty, best man at the Secretary of State's wedding, had in brokering meetings for Dr Fox and the access he had to government.
The self-styled advisor had no formal parliamentary or Whitehall position yet accompanied the Defence Secretary on overseas visits and meetings with foreign dignitaries.
Despite claims Mr Werritty had never been involved in official engagements, footage was uncovered yesterday that showed him meeting Sri Lankan president Mahinda Rajapaksa with Dr Fox in a London hotel last year.
He also helped set up a meeting with defence industry representatives at a hotel in Dubai. Dr Fox yesterday appeared to suggest that event was arranged following a chance meeting at a restaurant but later was forced to issue an embarrassing statement clarifying his position after emails surfaced showing it was pre-arranged.
Shadow Defence Secretary Jim Murphy has written to the Prime Minister calling for a full investigation into the controversy, claiming there are "significant shortcomings" in the current internal investigation.
He told Mr Cameron "there are important questions which I do not believe will be sufficiently addressed by this process".
The letter states: "The terms of reference are narrow and simply inadequate in light of the evidence that has come to light."
It adds: "This is a totally inadequate response to the scale and nature of the charges that the Secretary of State now faces.
"To arrive at a meaningful judgment on whether the ministerial code has been breached it is necessary to assess all the issues that have been raised.
"As you will know, the 2010 ministerial code states explicitly that it is not the role of officials to enforce the code and it is therefore inappropriate for the Permanent Secretary to undertake this role.
"The code states that if there is an allegation about a breach then you as Prime Minister should refer this to the independent adviser on ministers' interests.
"This course of action is now clearly necessary and I urge you take it immediately.
"It is important that the breadth of this inquiry matches the severity of the accusations."
Earlier, former prime minister Sir John Major admitted it was an "extremely difficult" situation for David Cameron to handle.
"Either natural justice requires you wait a long time and you are then said to be incapable of making decisions or you move too speedily and you are said to be ruthless.
"I don't know what the situation is. The Prime Minister has asked for the facts to have a first look on Monday and I think that is right.
"From the Prime Minister's perspective he has to balance natural justice and the truth rather than the gossip, the rumour and things that may be true. I have no idea whether they are or not."
Tory MP Daniel Kawczynski, who supported Dr Fox in his bid to become Conservative leader in 2005, told BBC Radio 4's The World This Weekend: "First of all can I say that I have found Liam Fox to be a man of extraordinarily high work ethic.
"He is a very hard-working MP and secretary of state and he is someone who I have found to be an honourable and decent man and so I am very disappointed about the whirlwind that the media and others are looking at in obviously making it very difficult for him at the moment."
Mr Kawczynski added: "You have to take the man by his pedigree. This is somebody who has throughout his political career acted in an honest, decent, open and transparent way and I think that should be taken into context.
"I very much hope that he will survive, quite frankly. I think it would be a huge loss to the Government for him to go, yes."
Former Armed Forces Minister Kevan Jones said: "This is a remarkable admission. Just 24-hours ago Liam Fox called these allegations 'baseless' and now he has apologised, but yet is denying any wrongdoing took place.
"The Defence Secretary simply cannot have sensitive meetings behind the back of his officials. This is incredibly serious and this response is incredible.
"This is a man in denial. We need a full explanation of the very serious questions which remain.
"There is no need for new procedures, but there is a need for a Secretary of State who abides by existing ones.
"The public will be deeply unimpressed if this obfuscation continues and it is the duty of the Prime Minister to make sure this is no longer allowed to cloud the character of his Government.
"This inadequate response is exactly why we need a full and proper inquiry led by the Cabinet Office into whether the Ministerial Code has been breached."
Mark Pritchard, secretary of the backbench Conservative 1922 Committee, said: "From the backbenchers I have spoken with, on both the left and right of the party; the Defence Secretary still has a huge amount of support. His statement has added to that support."