SYDNEY: Australia's Defence Minister Joel Fitzgibbon stepped down Thursday after a series of scandals, in the first major embarrassment for Prime Minister Kevin Rudd.

Rudd, who announced the resignation at a hastily organised news conference, said Fitzgibbon had paid a "high price" for his mistakes.

"I've made clear to my ministers over a long period of time the government expects high standards of accountability on the part of its ministers," Rudd said.

"All my ministers are familiar with that and it's on that basis the minister has extended his resignation."

Rudd had been a staunch backer of Fitzgibbon despite some damaging revelations, including his links to a Chinese-Australian businesswoman accused of spying for Beijing.

The resignation is the first from the popular Rudd government and represents the prime minister's biggest setback after a relatively smooth first 18 months in power.

It is also a major coup for the opposition, which can celebrate a rare success after chasing Fitzgibbon's scalp for months.

Rudd said the defence minister had quit after it emerged an army general in charge of defence health services was called to a meeting with Fitzgibbon's brother, who runs a health insurance company.

"The minister's decision was to extend his letter of resignation at his own initiative," Rudd said. "I accepted that resignation; it was the right thing to do."

Fitzgibbon was also under pressure after admitting earlier this week that he had failed to disclose a night's hotel accommodation paid for by his brother's firm, NIB.

"The minister has accepted responsibility for his mistakes. They are mistakes related to accountability, there have been a number of them," Rudd said.

"Obviously we're sad about this but it's important that we maintain high standards of ministerial accountability," he added.

Fitzgibbon, 47, has been under pressure since March when he admitted not declaring to parliamentary authorities two trips to China paid for by wealthy businesswoman Helen Liu.

He initially denied receiving anything other than "small gifts" from the China-born Liu, a family friend, after details of his links to her were leaked to the media.

Liu later denied espionage claims and the national spy agency has said it has no security concerns related to her.

But the opposition called for Fitzgibbon's resignation again this week when he admitted failing to disclose the hotel stay paid for by NIB.

He finally quit after details of meetings involving his brother Mark Fitzgibbon, US health group Humana and government officials came to light at a Senate hearing late Wednesday.

"I decided to thoroughly examine the nature of any contact between Humana, my brother and my office," Fitzgibbon wrote in his resignation letter.

"... I am not satisfied that contact between the various parties leave it clear that I have entirely conformed with your ministerial code of conduct."

No replacement has yet been announced but early speculation focused on Charlton MP Greg Combet and Education and Employment Minister Julia Gillard.