Clare Short has resigned as a Labour MP and will sit as an independent for the remainder of this parliament.
Ms Short has already said she will quit as an MP at the next general election.
In a letter to Labour's chief whip, the Birmingham Ladywood MP accuses Tony Blair of telling "half-truths and deceits to get us to war in Iraq".
The former Cabinet minister also accused the government of being "arrogant and error prone" and repeated her call for a hung parliament.
Ms Short told BBC News 24 that it took her a week to write the letter: "It was a very sad, big thing for me".
She said she decided to resign the whip because she could "not go on being rebuked every week".
Ms Short will continue to be a member of the Labour Party but will no longer vote with Labour MPs.
"I am not planning to quit the Labour Party," she told the BBC, adding that she did not want to attack individuals in government but was campaigning to change "the way of government".
She said she will continue to sit in the Commons and "speak the truth as I understand it".
Ms Short was severely reprimanded earlier this month after saying she would campaign for a hung parliament.
Labour's Chief Whip Jacqui Smith said she had breached the Parliamentary Labour Party's code of conduct.
The party decided against expelling the former international development secretary over the remarks.
But in her resignation letter to Ms Smith, released earlier to the BBC, she repeats her claim that a hung parliament would be good for democracy.
Chief whip Jacqui Smith reprimanded Ms Short this month
"It is my view that our political system is in trouble and that the exaggerated majorities in the House of Commons have led to an abject parliament and a concentration of power in Number 10 that has produced arrogant, error-prone government," writes Ms Short.
"Given that the next election might well produce a hung parliament, I want to be free to argue that this creates a valuable opportunity to reform our voting system so that the House of Commons more accurately reflects public opinion, and we have a parliament more able to hold the government to account and to ensure that policy is well considered".
Ms Short, 60, also accuses Labour's previous chief whip, social exclusion minister Hilary Armstrong, of using her authority "to stop me discussing the fact that the prime minister engaged in a series of half-truths and deceits to get us to war in Iraq".
Ms Smith said it was "a shame" that Ms Short had resigned, and added that it was "unfortunate" the resignation had been made by a leak to the media.
Both Ms Short and Ms Smith accused each other of leaking a copy of the letter.
The chairman of Ladywood Constituency Labour Party, Malcolm Speak, said he was not surprised by her resignation, as her criticism was well-known.
"It is only surprising in as much as Clare's support for much of what the government is doing and has done is also well documented," he said.
Ms Short was accused of being a "traitor" by Labour peer Lord Foulkes.
Khalid Mahmood, MP for neighbouring Birmingham Perry Barr, said: "The party has always stood up for Clare, but Clare hasn't always stood up for the party."
He questioned what had prompted her to change her mind about following the whip, especially as she campaigned under the Labour manifesto just 18 months ago.
But Ms Short said: "I stood in the last election on a platform that said the government has done some good things and also made some terrible mistakes, and I will continue to support what's good and oppose things that I think are wrong so it's on that basis I was elected in Birmingham Ladywood and that's the path I remain on."
Lord Chancellor Lord Falconer said: "Clare had been pressing for a hung parliament in comments she had made recently, which appeared to be saying that she would hope that some members of the Parliamentary Labour Party would lose their seats.
"And I can see that she might take the view that if one's got to a point where one's pressing for people to lose their seats, that would be inconsistent with continuing to take the Labour whip."
The Conservatives responded by saying it was "no surprise that Clare Short has decided to jump ship".
"The Labour Party is divided and paralysed," a spokesman said.
Clare Short has been a vocal critic of Mr Blair's foreign policy and leadership style since quitting as international development secretary in 2003.
She has resigned from Labour's front bench on three occasions - twice over the Gulf Wars and once over prevention of terrorism laws.