New Conservative peer Howard Flight apologised for attacking Government welfare cuts which he suggested would encourage the poor to have more children.
Mr Flight said he wanted to withdraw the comments minutes after Prime Minister David Cameron said he expected him to say sorry and disagreed with his stance.
"I apologise unreservedly for any offence caused and would like to withdraw the remarks," he said in a statement issued by the party.
Asked whether Mr Cameron was satisfied with Mr Flight's apology, the Prime Minister's spokesman said: "It is the end of the matter. He has apologised, and that's that."
Mr Flight told London's Evening Standard that taking child benefit away from top-rate taxpayers would mean they were "discouraged from breeding", while benefit claimants would have "every incentive".
Mr Cameron announced only last week that Mr Flight - who was sacked as an MP in 2005 for outspoken comments about spending cuts - would be given a seat in the Lords.
Asked if he would now prevent him taking his place in the upper house, the Prime Minister said: "I don't agree with what he said and I am sure that he will want to apologise for what he has said, and I think we can probably leave it at that."
Mr Flight told the Evening Standard: "We're going to have a system where the middle classes are discouraged from breeding because it's jolly expensive, but for those on benefit there is every incentive. Well, that's not very sensible."
The comments by the ex-party vice-chairman, who is yet to take his seat in the Lords, sparked angry responses from Labour and the unions and Downing Street swiftly rejected his words.
Speaking to the BBC in the immediate aftermath of the interview's publication, Mr Flight insisted his reported comments were "out of context", adding: "I really have nothing more to say."
But soon afterwards, Mr Cameron, at a Downing Street press conference alongside Swedish prime minister Fredrik Reinfeldt, was challenged to say whether he would reverse the peerage award.
Within minutes, Mr Flight issued his apology.
The Westminster return of the right-winger, who was barred from defending his Arundel and South Downs seat at the 2005 election by then leader Michael Howard after being taped suggesting the Tories had secret plans to cut spending, has surprised many observers.
He suggested to the newspaper that Mr Cameron had brought him back in recognition that his removal at that time was wrong.
In the interview he also criticised the Government's plans to raise tuition fees.
"Two of my nieces and nephews, both of them very bright, gave up university halfway through because they didn't want the financial burden," he said.
Shadow work and pensions secretary Douglas Alexander said: "These shameful but revealing comments cast serious doubt over David Cameron's judgment in personally appointing Howard Flight to the House of Lords only a few days ago.
"Last week one of the Prime Minister's senior advisers told us we'd never had it so good and now his latest hand-picked peer comes out with these comments."
TUC general secretary Brendan Barber said: "Howard Flight has shown himself to be an insensitive throwback to the worst of 1980s politics within days of being made a peer by the Prime Minister.
"This is exactly the kind of remark that leads to political parties being thought of as nasty, and shows just how shockingly out of touch with the lives of ordinary low and middle-income people some supporters of this Government can be."
Chancellor George Osborne sparked widespread anger last month when he said households with a higher-rate taxpayer would see child benefit payments axed from 2013.
The state help - currently paid universally to all families - is worth £1,000 a year for those with one child and £2,500 a year for those with three.
Critics say the cut, designed to save the taxpayer £2.5 billion a year, is unfair as some single-earner households will lose out while some with two incomes earning far more in total will not.
Around 1.5 million families will be affected.
The controversy comes shortly after another Tory peer was forced to issue an apology for ill-judged remarks in the media.
Lord Young resigned as David Cameron's enterprise tsar last week after coming under fire for claiming most people have "never had it so good".
He told the Daily Telegraph that low interest rates meant home-owners were actually better off thanks to the "so-called recession".
He dismissed the 100,000 job cuts expected each year in the public sector as being "within the margin of error" in the context of a 30 million-strong workforce and said complaints about spending cuts came from "people who think they have a right for the state to support them".
The 78-year-old former trade and industry secretary in Margaret Thatcher's government also said people would look back on the recession and "wonder what all the fuss was about".
The Prime Minister initially seemed determined to hang on to his adviser despite Downing Street branding his remarks "offensive" and "inaccurate".
Lord Young made a glancing reference to the furore when he led a debate on the health and safety report he produced at the request of the Prime Minister - the first time he had spoken in the upper chamber for 12 years.
He said he had recently noticed fewer press stories on the subject than before, but joked he had "noticed one or two other stories".
Sally Copley, head of UK policy at Save the Children, said: "We're glad he has apologised, but does Howard Flight really have any idea what life is like for the 3.9 million children currently living in poverty in this country, many of whom still need a hot meal on the table or a warm winter coat - and especially now their families could be further hit by 500,000 job losses in the near future and the £7 billion welfare cuts announced last month?
"We need to hear more from politicians about how to end child poverty by 2020, not offensive and ignorant remarks based on prejudice not fact."