The search for a new Tory candidate in the constituency of former deputy party chairman Howard Flight is under way.
Howard Flight says he 'regrets' his remarks
Tory leader Michael Howard withdrew the whip from the MP and he was deselected over comments about spending plans.
Mr Flight refused to stand down but the Conservative Association in Arundel said it would choose a new candidate.
Shadow Chancellor Oliver Letwin said the row over Mr Flight's suggestion the Tories could exceed planned £35bn spending cuts had been "embarrassing".
Mr Flight's comments had been seized on by Tony Blair as evidence of secret Tory plans for cuts to public services - something vehemently denied by Mr Howard.
Mr Letwin said it had been a couple of "very unpleasant" days for the party.
But he said the saga could be turned to the party's advantage, with Mr Howard's swift action proving he would make a credible prime minister.
Former Tory chairman Lord Tebbit - for whom Mr Flight used to be a personal adviser - said that given the pre-election atmosphere, Mr Flight's comments had been "extremely foolish".
He told BBC Radio 4's Today programme: "I think the problem for Michael Howard was that he felt it was not so much about whether the cuts were £35bn or £27bn or whatever.
"The real problem for Michael Howard was that he had stated what he, as a Conservative prime minister, would do and that Howard Flight seemed to be casting doubts on the integrity of Michael Howard - that was the capital offence."
Mr Flight had resigned his post as the party's deputy chairman, but had said he would not withdraw as a candidate in the safe Sussex seat.
Arundel and South Downs Conservative Association chairwoman Angela Litchfield said it had heeded Mr Howard's call to choose a new candidate.
"Howard Flight has been a first-class constituency MP and has made a huge contribution to the Conservative Party over many years," she said.
"We are all extremely sad at what has happened."
The Labour party will be unveiling an election poster on Saturday suggesting the Tories plan to charge for NHS operations.
The Tory leader attempted to draw a line under the row by sacking Mr Flight as deputy party chairman and then removing the party whip - preventing him from standing as an official Tory candidate.
But in a BBC interview Mr Flight indicated he intended to be a Conservative candidate.
'No secret plan'
The row has been the Conservative Party's "worst nightmare", putting Tory spending cuts at the top of the agenda, said BBC political correspondent Guto Harri.
Mr Flight was a key architect of the Tories' economic policy, setting up the James review into public spending, which identified £35bn in savings.
In his Wednesday night speech, a tape of which was leaked to The Times, he said the Tories could go further if they won the election because "everyone on our side of the fence believes passionately that it will be a continuing agenda".
After the election "you can actually get on with what needs to be done", he added.
But Mr Flight told the BBC his remarks had been misinterpreted and subject to Labour "spin" and he insisted there was "no secret plan for more cuts".