Mr Hatoyama wanted the head of Japan Post to step down
Japan's internal affairs minister Kunio Hatoyama has resigned in a row with Prime Minister Taro Aso over the boss of the state-owned Japan Post.
Mr Hatoyama had insisted that the head of Japan Post, Yoshifumi Nishikawa, step down in a row over property sales.
The resignation of Mr Hatoyama, one of Mr Aso's key cabinet members, is a blow to the prime minister ahead of elections later this year.
Many in the government had opposed the replacement of Mr Nishikawa.
Mr Hatoyama wanted Mr Nishikawa to step down over his controversial attempt to sell a string of resorts owned by Japan Post to Orix Corp.
The chairman of Orix helped the government plan its privatisation of the postal system.
Many in Mr Aso's ruling Liberal Democratic Party (LDP) wanted Mr Nishikawa to stay on as president of Japan Post.
The firm is one of four state-owned units created from the break-up of the postal system in 2007 in the first step of the 10-year privatisation process begun by former Prime Minister Junichiro Koizumi.
The LDP is facing a resurgent opposition Democratic Party ahead of general elections which must be called before October.
Opinion polls suggest the Democrats now lead the LDP, which has ruled for some 50 years with one short break.
Mr Aso's popularity has plunged as Japan struggles with its deepest recession in decades.