The supermarket billionaire was questioned by police over the 'cash for honours' affair after he failed to disclose a£2 million loan to Labour in April, but was cleared of breaching the ministerial code.
He apologised about the undisclosed loan earlier in the year, saying he had confused it with a declared donation he had made.
The former chairman of Sainsbury's supermarkets is believed to have donated up to£16 million to the Labour party since Blair became leader in 1994.
Lord Sainsbury, who is being replaced by energy minister Malcom Wicks, said the police enquiry had 'no connection' to his decision to resign.
Prime Minister Tony Blair said the former science minister had been a 'huge asset' to the country.
Lord Sainsbury said: 'I've achieved most of what I can achieve and I think now is the time to get back to all other business and charitable activities, which I've not been able to do during the past eight years.'
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