Umberto Bossi, the firebrand leader of Italy's opposition Northern League party, resigned on Thursday after allegations that taxpayers' money was used to pay for renovations at his villa and holidays for his children.
He resigned to better defend and protect the image of the movement and of his family in this delicate situation, the party said in a statement.
The move, announced by the League after a meeting of its federal council in Milan, is likely to destabilise the populist, anti-immigration party, weakening one of the main political forces opposing Prime Minister Mario Monti's austerity programme in parliament.
Earlier this week, prosecutors placed the party's treasurer, Francesco Belsito, and two other officials under investigation over accusations of fraud and illegal party financing.
Belsito, who resigned on Tuesday, allegedly used the party's funds to pay for the personal expenses of Bossi's sons, including travel, dinners, hotel accommodation and expensive cars, as well as for improvements to the leader's house.
Bossi, 70, is not under investigation and has denied ever using the party's money for his or his family's benefit.
The raucous leader, known for his unorthodox, rabble-rousing rhetoric, had been at the helm of the League since founding it in the late 1980s as a northern-based counterweight to the corrupt ways of Roma Ladrona (Robber Rome).
Despite its pro-devolution agenda and initially calling for the secession of Italy's wealthy north from its less developed south, the Northern League became a strong ally of former Prime Minister Silvio Berlusconi and joined all three of his governments.
After Berlusconi was brought down last November by market fears over Italy's huge public debt, Bossi parted ways with his former ally and refused to support his successor, Mario Monti, hoping to capitalise on popular discontent with the new government's painful austerity measures.
Even after a serious stroke in 2004 caused him speech problems, Bossi kept a tight grip on the League.
But the party's rank-and-file and even some top officials had long complained that the League had become more interested in the perks of ministerial jobs in Rome than the concrete problems of its northern electorate - mostly small businesses and self-employed workers strangled by high taxes.
At local elections last year, the League lost ground in its northern heartland, winning less than 10 percent of the vote in key cities like Milan and Turin - compared with more than 12 percent in 2010 regional polls.
Resentment within the party had also mounted at the so-called magic circle of Bossi's protégés and at his 24-year old son Renzo, whose grooming as the leader's heir included a seat on Lombardy's regional parliament.
The party needed to show that it is still different from all the others, Flavio Tosi, the League's mayor of Verona, said commenting on Bossi's departure. His was a very personal and painful decision.
Bossi's resignation is likely to open a power struggle within the League, and could pave the way for the emergence of former Interior Minister, Roberto Maroni, as a new leader.
The party statement said Maroni, together with two other senior party officials will temporarily lead the League until a congress of the federal council is held by the autumn.
Maroni has condemned the scandal and called for a thorough clean-up within the party.
(Editing by Andrew Osborn)