Scott Morrison was reportedly blindsided by controversial backbencher Craig Kelly quitting the Liberal Party to sit on the crossbench.
Mr Kelly made the announcement at a joint party-room meeting on Tuesday morning, but confirmed he would continue to support the government in terms of supply.
Prime Minister Scott Morrison was not given prior warning of the resignation, according to Sky News.
The move cuts the government’s majority in the House of Representatives to a single vote.
Mr Kelly has repeatedly touted questionable treatments for COVID-19 which cut against advice from the federal health authorities.
Mr Kelly said he did not take the decision lightly.
“I‘ve done this with a very heavy heart,” Mr Kelly told Sky News.
“If I’m best to represent the constituents of my area and be faithful to the oath that I took … and to be able to speak frankly and fearlessly, I need to do that from the crossbench rather than from the government benches.”
But Mr Kelly insisted he held no ill will towards the Prime Minister and the government would “continue as it was”.
“I hope he goes on to be one of the longest serving and greatest prime ministers,” he said.
“I just feel that if I’m to speak and to use my voice the best I can, this is the best decision for myself and for the people that I represent.”
He was banned by Facebook last week for a week for violating the social media giant’s COVID-19 misinformation rules.
His grip on the seat of Hughes had come under question amid a backlash against the behaviour.
Mr Morrison intervened before the 2019 election to ensure Mr Kelly was preselected for the seat, after the backbencher threatened to move to the crossbench.
The prime minister refused to rebuke Mr Kelly publicly for weeks, simply urging Australians to follow official health advice.
But after Mr Kelly appeared on a podcast hosted by COVID-19 conspiracy theorist Pete Evans, sources close to Mr Morrison said the backbencher had been given a “dressing down” by the Prime Minister.
But the backbencher continued to tout questionable treatments, despite releasing a statement agreeing to support the government’s rollout plan.
“I agreed to support the government’s vaccine rollout which has been endorsed by medical experts,” he said.
“I have always sought to support the success of our nation’s public health response during the pandemic.
“I believe that the spread of misinformation can damage the success of our public health response during the pandemic.”