Religious Affairs Minister Suryadharma Ali resigned Monday after being accused of misusing funds that were supposed to help Muslims go on pilgrimage to the holy city of Mecca.
The anti-corruption agency last week named Suryadharma a suspect in its investigation into alleged graft in the organisation of the haj, or pilgrimage, to Saudi Arabia in 2012-13.
The agency previously said it had detected suspicious transactions of around $20 million in a special haj fund, which is a combination of government money and cash from people who plan to make the pilgrimage.
The allegations have caused outrage in Indonesia, the world's most populous Muslim-majority country, where millions have paid in to the fund and must wait years as the annual quota of haj pilgrims is strictly controlled.
Suryadharma is the latest figure close to outgoing President Susilo Bambang Yudhoyono to be ensnared in a corruption case. The scandal also threatens to tarnish presidential candidate Prabowo Subianto, whom Suryadharma 's Islamic party is backing at forthcoming elections.
The minister insisted at the weekend that he would not resign over the allegations, but changed his mind after a meeting with Yudhoyono on Monday.
"Suryadharma Ali returned to the president the title of religion minister that had been entrusted to him," state secretary Sudi Silalahi told reporters after the meeting at the presidential palace in Bogor, outside Jakarta.
He said the president had "asked him to file a written resignation in one or two days". Silalahi added that Suryadharma continued to insist that "he was not in the wrong" during the meeting.
Anti-corruption investigators have said they are probing irregularities in the overall cost of the hajj, accommodation for pilgrims, and the people selected to go on the pilgrimage.
Media have reported one of the allegations against Suryadharma was that he had helped some 100 people, including relatives and lawmakers, skip the queue to go on the haj, instead of waiting years as most Indonesians have to.
Suryadharma remains head of the United Development Party and he is not in custody, although the anti-corruption agency has given him a travel ban.
He is the second sitting minister in Yudhoyono's cabinet to quit over corruption allegations, following the sports minister's resignation in 2012.
The flood of corruption cases has damaged the Democratic Party of Yudhoyono, who will step down this year after a decade in power, with its support falling by half at legislative polls in April.
Indonesia is ranked 114th out of 177 countries and territories in Transparency International's Corruption Perceptions Index. A number one ranking represents the least corrupt.