The senior Tory announced his resignation on Thursday after the Prime Minister was forced into a retreat over plans to prevent his immediate suspension by launching a review of the entire disciplinary system.
Wednesday had seen a furious row break out as Number 10 supported Mr Paterson’s allies, who had tried to protect him after he was found to have breached lobbying rules.
The Prime Minister had sought to reform the system instead, a move that saw opposition parties refusing to take part in a “corrupt” Tory-led committee.
Following a ferocious backlash that saw MPs inundated with emails and even their offices vandalised, Mr Johnson changed his mind.
Rather than face a fresh vote on a possible six-week ban, Mr Paterson said he would resign as an MP, triggering a by-election after the high-profile sleaze row.
He said in a statement: “I have today, after consultation with my family and with much sadness, decided to resign as the MP for North Shropshire.
“The last two years have been an indescribable nightmare for my family and me.
“My integrity, which I hold very dear, has been repeatedly and publicly questioned.
“I maintain that I am totally innocent of what I have been accused of and I acted at all times in the interests of public health and safety.
“I, my family and those closest to me know the same. I am unable to clear my name under the current system.”
Labour leader Sir Keir Starmer has demanded an apology from the Prime Minister.
The Labour leader said: “This has been an unbelievable 24 hours even by this government's chaotic standards. Only yesterday Boris Johnson was forcing his MPs to rip up the rules on standards in public life in a truly damning indictment of this Prime Minister and the corrupt government he leads.
"Boris Johnson must now apologise to the entire country for this grubby attempt to cover up for the misdemeanour of his friend.
"This isn't the first time he's done this, but it must be the last. And Boris Johnson must explain how he intends to fix the immense harm he has done to confidence in the probity of him and his MPs.”
SNP MP Pete Wishart said: "Boris Johnson must now come to Parliament to answer for his grubby role in the Tory corruption scandal.
"The Prime Minister must perform a full U-turn, apologise to the Standards Commissioner and commit to an independent inquiry into the growing problem of Tory sleaze, cronyism and corruption at the heart of the UK Government.
"This Tory government is the sleaziest in decades. It has been beset by scandal after scandal, with the Prime Minister and his Tory colleagues guilty of breaking the ministerial code, acting unlawfully, handing peerages to donors, contracts to cronies and special access to their pals. The Owen Paterson affair is just the tip of the iceberg. It absolutely stinks.”
Earlier the Prime Minister’s former chief aide Dominic Cummings alleged on Twitter that proposals to set up a new committee to review standards, which were approved by MPs before being scrapped on Thursday, had been designed to target Standards Commissioner Kathryn Stone, ahead of any investigations into allegations made against the Prime Minister.
Downing Street denied this was the case, but earlier, before the measures were binned, business secretary Kwasi Kwarteng had said Ms Stone should consider her position.
Speaking on Sky News, Mr Kwarteng said: “I think it’s difficult to see what the future of the commissioner is, given the fact that we’re reviewing the process, and we’re overturning and trying to reform this whole process, but it’s up to the commissioner to decide her position.”
Pushed on what he meant by “decide her position”, Mr Kwarteng said: “It’s up to her to do that.
“I mean, it’s up to anyone where they’ve made a judgement and people have sought to change that, to consider their position, that’s a natural thing, but I’m not saying she should resign.”
Ms Stone’s office had signalled she intended to serve her full five-year term up to December 2022.
Shadow leader of the Commons Thangam Debbonaire accused the Government of “trying to bully the Standards Commissioner out of her job”.
But the Prime Minister’s official spokesman said Ms Stone’s role was “entirely a matter for her”.
He said: “The Prime Minister’s focus is on, as he set out yesterday, securing a proper appeal for this process, as there are other walks of life.”
Asked if the saga had been a pre-emptive strike, he said: “No.”