Suspended Conservative candidate in Dudley North Afzal Amin has quit with immediate effect, says a Tory party source.
His resignation comes after he hit back at claims he allegedly plotted to win votes by taking credit for stopping an English Defence League (EDL) protest.
In a statement on his website, Mr Amin had said the claims, published in The Mail On Sunday, "grossly misrepresented" the truth and presented "an inaccurate picture of what was happening".
But now Conservative sources have said he has stepped down as candidate "with immediate effect" - a day ahead of a planned disciplinary hearing.
The party will now act "swiftly" to appoint a new candidate, who must be in place by the time nominations close on 9 April.
A Conservative spokesman said: "Afzal Amin is resigning as Conservative candidate for Dudley North with immediate effect.
"Conservative Chairman Grant Shapps has welcomed Mr Amin's decision and thanked him for his work in the past."
The would-be MP for Dudley North had been accused of collaborating with the EDL to announce a protest march against the building of a "mega-mosque".
The plan was for the protest to be scrapped with Mr Amin taking credit for defusing the situation, The Mail On Sunday reported.
In secretly-filmed footage, obtained by the newspaper, Mr Amin promised former EDL leader Tommy Robinson and current EDL chairman Steve Eddowes he would subsequently be an "unshakeable ally" in parliament.
"This is my fantasy," he says in the footage, reportedly filmed by Mr Robinson at an Indian restaurant in Birmingham.
"If I could demonstrate to the people in Dudley that I can be a positive voice for community cohesion... then that would help me a lot in the forthcoming election."
In a recorded phone call with Mr Robinson, Mr Amin also says he needs two "white" canvassers to help his campaign for election.
"I need two white, working class lads to go round those areas to say to people, 'You support the Army, if you support the troops then vote for this guy'. That's what I need," he said.
When Mr Robinson raises the question of payment Mr Amin makes it clear it is illegal to pay people to canvass during elections.
But when it is suggested the men can be paid indirectly through Mr Robinson, Mr Amin replies: "Yes of course, of course".
The allegations prompted his suspension from the Conservative Party.
Mr Robinson, who blew the whistle on the alleged plot, told Sky News Mr Amin's offer was an example of "corruption in politics" and "dishonesty".
"I couldn't believe it," he said. "Here was a man sitting before me who was telling me he was going to be the future prime minister of our country, offering bribes and money.
"This is not a one off scenario. This is going on across the country in every political party."
The Muslim candidate had been selected to stand in the contested Dudley North constituency, which has a Labour majority of 649.
As a Muslim army officer who served for over a decade in Iraq and Afghanistan, Mr Amin was considered a star Tory candidate.
He hoped to overturn the Labour majority in the General Election in May.
Just four days ago, he tweeted: "This General Election could be one of the most important of our lifetime. Now is not the time to lose faith in politics."
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