Defence Secretary Liam Fox resigns and admits he allowed 'blurring' of boundaries

Liam Fox bowed to overwhelming pressure last night and resigned as Defence Secretary over ties with his close friend and self-styled adviser Adam Werritty. He finally gave up his fight to hold on to his post and became the first Conservative to leave David Cameron's Cabinet, admitting in a resignation letter that he had allowed the distinction between his personal life and his Government post to become "blurred".

Mr Fox's resignation came after 10 days of torrid headlines about Mr Werritty's business links and his privileged access to the Defence Secretary.

Mr Fox had tried to ride out the storm but yesterday afternoon concluded he could not hang on any longer. He telephoned Mr Cameron to say he should resign. Last night Mr Fox cleared his desk in the Ministry of Defence.

Mr Cameron was swift to replace him with Philip Hammond, who was previously the Transport Secretary. Mr Hammond was succeeded at the Department for Transport by Justine Greening, the Economic Secretary at the Treasury, who becomes the fifth woman in the Cabinet. She was replaced at the Treasury by Chloe Smith, whose place in the Government whips office went to Greg Hands, parliamentary aide to George Osborne.

Mr Fox, seen as the standard-bearer of the Tory right, was braced for another raft of allegations in tomorrow's newspapers. He told friends he had decided to step down because he could see no end to the media feeding frenzy.

Other Whitehall sources said the final blow came yesterday when reports suggested that Mr Werritty's lavish lifestyle and globe-trotting at Mr Fox's side was funded by rich business figures with interests in defence companies and who shared his political agenda as an avowed neo-Conservative, pro-American Eurosceptic.

Tory MPs, who supported Mr Fox in the Commons on Monday, warned yesterday that support for him was beginning to drain away. "It was clear the tide was turning," one senior Tory said.

Mr Fox had been backed by Downing Street, which insisted the Prime Minister was prepared to wait until Sir Gus O'Donnell, the Cabinet Secretary, delivered his inquiry report on Mr Werritty's role and whether Mr Fox had broken the ministerial code.