David Chaytor apologised for the error and said he would repay money owed
David Chaytor is to stand down as a Labour MP at the next election after being accused of claiming money for a mortgage he had already paid off.
Mr Chaytor was suspended by the Parliamentary Labour Party pending an investigation of the allegations by an internal disciplinary panel.
The Daily Telegraph says the Bury North MP took nearly £13,000 for the flat in London after it was paid off in 2004.
Mr Chaytor apologised for the error and said he would repay the money owed.
More than a dozen MPs have said they will quit the Commons since the expenses scandal broke three weeks ago including Elliot Morley, who faced similar allegations to Mr Chaytor.
Several have been forced out over controversy over their personal expenses claims.
Mr Chaytor referred himself to the MPs' standards watchdog over the matter and said he would immediately arrange repayment to the House of Commons fees office.
Announcing his decision to stand down, Mr Chaytor said he had taken the decision after talks with local and national party officials and other colleagues.
"I do not want my self-inflicted problems to be a distraction to my party's campaign as we move towards the general election," he said in a statement.
His "priority" in the coming months was to "explain his errors" in relation to his expenses claims, he added.
"This will be time-consuming and stressful," he said.
"I have referred my case to the Parliamentary Commissioner for Standards and will co-operate fully with his inquiry".
An internal Labour party panel - dubbed the star chamber - has been considering Mr Chaytor's case and that of four other MPs facing allegations over their conduct before deciding whether they should be allowed to represent Labour at the next election.
MPS LEAVING PARLIAMENT
The following MPs have said in the past three weeks that they will not contest the next election
Conservative: Andrew MacKay, Julie Kirkbride, Douglas Hogg, Sir Peter Viggers, Anthony Steen, Sir Nicholas and Ann Winterton, Christopher Fraser
Labour: Margaret Moran, Ben Chapman, David Chaytor, Ian McCartney, John Smith, Patricia Hewitt, Beverley Hughes, Michael Martin (Speaker)
Two of those under investigation - former minister Mr Morley and Labour South MP Margaret Moran - have already said they will be standing down as MPs while a third, Ian Gibson, has said he will step down if his constituents ask him to.
After the Daily Telegraph published its allegations against Mr Chaytor, the MP was quoted as saying he had made an "unforgivable error in my accounting procedures for which I apologise unreservedly".
His wife Sheena said her husband was "very shocked" when he heard of the claims around his expenses, arguing that he had made "a really stupid mistake".
The Telegraph also claimed Mr Chaytor - who became an MP in 1997 - "flipped" the designation of his second home six times, including once to a house registered in his son's name.
Former Health Secretary Patricia Hewitt has also said she will stand down at the next election but insisted her decision had nothing to do with the expenses furore.
Children's minister Beverley Hughes has also announced she would stand down due to "family circumstances".