Barry Legg was a Maastricht rebel with Mr Duncan Smith
The Conservative Party's chief executive Barry Legg has resigned from his job after three months in the role.
The right-wing friend of the Tory leader has also stepped down from his role as Iain Duncan Smith's chief of staff.
The former MP was ousted after "a strategic review of the organisation and operation" of central office by the Conservative Party Board.
I would like to thank Barry for his work over the past three months
While Mr Duncan Smith said he was "sorry" to see Mr Legg go, across Westminster it was widely predicted that he would have gone anyway following a meeting next week to resolve the controversy over his appointment.
It was also perceived as no coincidence that the news emerged as attention was focused on a crunch Commons vote on foundation hospitals.
A spokesman for Tory Central Office, announcing Mr Legg's departure, said: "The decision not to continue to employ a chief executive, but rather devolve responsibilities to other members of the management team, has obvious consequences for the present incumbent Barry Legg.
"Given the change to the position, Mr Legg has offered his resignation, which the board has today accepted."
Mr Duncan Smith said: "I would like to thank Barry for his work over the past three months and I am sorry that the reorganisation means that he will now be leaving."
Mr Legg said: "I am sorry to be leaving so soon and do so regretting that I have not been able to do more.
"I wish the party every success in the future."
The news comes after senior Conservative backbencher Derek Conway called for Mr Legg to be sacked following revelations broadcast on BBC Radio 4's Today Programme about scandals he was involved in.
As a leading Westminster councillor, he played a key part in a decision, later condemned by a public inquiry commissioned by the council, to move homeless families into two London tower blocks known to be riddled with asbestos.
As company secretary of major food company Hillsdown Holdings, Mr Legg was also involved in a decision to remove an £18m surplus from a pension fund, which a High Court judgment described as unjust and unauthorised.
I think this is the right decision and I think Iain Duncan Smith was right
to resolve the matter
The company was ordered to repay the money with interest.
Mr Legg told Today he had had been over-ruled after trying to persuade his company to give pensioners some of the surplus and had no recollection of the council decision.
On Wednesday evening Mr Conway welcomed Mr Legg's departure.
"I think this is the right decision and I think Iain Duncan Smith was right to resolve the matter," he said.
"He has shown leadership in doing that. It will have been a difficult
decision to take because he was a friend. But leadership is about taking difficult decisions."
Mr Legg, 54, was appointed in February to replace Mark MacGregor, a keen supporter of Michael Portillo's socially liberal politics, in a move generally viewed as a snub to so-called party "modernisers".
At the time it was also announced that Mr Legg would be taking on the role of chief of staff to Mr Duncan Smith.
This led to claims that not only was the Tory leader adopting a bunker mentality, but also acting unconstitutionally by taking a decision that should have been the preserve of the Conservative Party Board.
When Mr Duncan Smith sacked Mr MacGregor as chief executive and appointed Eurosceptic Mr Legg in his place it caused widespread discontent in the Conservative Party and sparked open dissent from leading backbenchers, including Michael Portillo.
But traditionalists were delighted.
The MP for Milton Keynes South West from 1992 to 1997, Mr Legg was one of Mr Duncan Smith's fellow Maastricht rebels in the early 1990s.
He also published right-wing pamphlets about tax and social security and backed John Redwood's 1995 leadership challenge against John Major.