Prime Minister Julia Gillard says she understands Daryl Melham's decision to step down as Labor caucus chairman.
Mr Melham announced his decision to quit the post after eight years during a regular caucus meeting in Canberra in Tuesday.
'Daryl Melham has been an exceptional caucus chair, ensuring the smooth running of our caucus meetings for the past eight years,' Ms Gillard said in a statement.
'Mr Melham has expressed a completely understandable desire to spend more time in his electorate as we head into an election year.'
The prime minister thanked him for his loyal service to the party.
Mr Melham, who backed Ms Gillard in February's leadership ballot, has been active in reforming the caucus committee structure to boost members' involvement in decision making.
The 22-year veteran of federal parliament has been preselected to run in Banks at the 2013 election.
Mr Melham said he had spoken with Ms Gillard and she fully understood and supported his decision.
'The time has come for generational change and my resignation as chair will allow my successor time to develop the role over the next 12 months,' he said.
'The seat of Banks has changed substantially and I wish to focus my efforts on retaining the seat for the Labor Party.
'Any other reports relating to the reasons for my decision are wrong.'
Mr Melham holds the Sydney seat of Banks by a slim margin of 1.5 per cent.
Cabinet minister Tony Burke said it was sad to see Mr Melham go, and reminisced on their early political careers as factional enemies at their Sydney Labor Party branch.
'In the years that have followed, Daryl is somebody who I have learnt to rely on and have the highest regard for,' he told reporters in Canberra.
Mr Melham later told reporters in Canberra his resignation was 'in good faith' and had nothing to do with the state of the government.
'I've been loyal to every leader, loyal to the party,' he said.
'I genuinely thought that the time was right for another person to take that position between now and the election and for me to concentrate on the seat of Banks which ... is a very tough seat to win.'
Asked whether it was a reflection on the prime minister, he said: 'Absolutely not. The only reflection on Gillard is it's a vote of confidence in Gillard.
'(I'm) confident that Julia is safe in her job.
'It's a positive reflection, not a negative reflection.
'If I had something negative to say I'd say it to your face.'
However Mr Melham said he was occasionally frustrated with caucus processes.
'I've got a nickname of Grumpy, because I believe in professionalism,' he said.
'Sometimes (Labor) branch meetings behave a lot better than caucus and caucus needs to get its act together.
'We are in government and we need to act like we are in government.'