THE Government ended its war with the BBC over the David Kelly affair last night after director general Greg Dyke resigned - sparking walkouts throughout the country from angry corporation staff.

Lord Richard Ryder, the BBC's acting chairman apologised unreservedly for the controversial Radio 4 broadcast by journalist Andrew Gilligan.

Prime Minister Tony Blair welcomed the apology and said the Government could now "draw a line" under the whole episode.

His ex-communications director, Alastair Campbell, the most tenacious critic of the BBC, also said he now accepted the affair was over.

But the resignation of Mr Dyke, who takes up a position as chancellor of York University in August, sparked outrage at BBC centres across the country. Hundreds of the corporation's workers staged spontaneous walk-outs and called on the director general to be reinstated.

Many of the staff, including those at Newcastle, York and Middlesbrough, said they felt demoralised after Mr Dyke's resignation and angry that much of the criticism had been levelled at the BBC.

Sarah Drummond, managing editor of BBC Radio Newcastle, BBC Wear and BBC Tyne, said: "There is a strength of feeling here that it is a great shame that we have lost our director general and staff wanted to make their feelings known publicly."

Lord Ryder's apology was the final act of compliance from the corporation the Government had been waiting for since Lord Hutton's report into Dr Kelly's death.

It found Mr Gilligan's claims in the Today programme that No 10 had "sexed up" its dossier on Iraq's weapons of mass destruction were unfounded and cleared ministers from Mr Blair down of any impropriety concerning events leading up to weapons expert Dr Kelly's suicide.

But the report strongly criticised the BBC's editorial and management systems.

Mr Dyke resigned yesterday afternoon in an "attempt to draw a line under this episode". His resignation followed that of ex-chairman Gavyn Davies.

Mr Dyke said: "Throughout this affair my sole aim as director general of the BBC has been to defend our editorial independence and to act in the public interest."

An emotional Mr Dyke later told BBC staff at their central London headquarters: "I don't want to go. But if, in the end, you screw up you have to go."

Lord Ryder issued the apology Downing Street had demanded earlier, turning the screw on the beleaguered corporation. He said: "On behalf of the BBC, I have no hesitation in apologising unreservedly for our errors."

Mr Blair immediately welcomed the BBC's apology, and said: "This for me has always been a very simple matter of an accusation that was a very serious one that was made. It has now been withdrawn, that is all I ever wanted.

"I have no doubt that the BBC will continue, as it should do, to probe and question the Government in every proper way. What this does now is allow us to draw a line and move on."

Mr Campbell said: "All we have ever wanted was for these allegations to be withdrawn. I'm glad that has now happened and I want to thank Richard Ryder for that."

He said he had no interest now in what happened to other BBC personnel involved in the affair, such as Mr Gilligan, adding he wanted to build a new life outside No 10.

Former chairman of the governors Sir Christopher Bland said there was a "curious imbalance" in Lord Hutton's report which exonerated the Government but "tarred and feathered the BBC".

No 10 said last night it hoped a new chairman of governors - chosen under strict new rules governing public appointments - would be in place by Easter.

Mr Dyke's deputy, Mark Byford, has been appointed as acting director general until a successor is chosen.

* Later last night, Mr Dyke suggested that he may shortly voice criticisms of the Hutton Report. He told BBC1's 10 O'Clock News: "I'm not going to talk about Hutton now, but I will at some stage.

"I don't necessarily accept the findings of Lord Hutton."

He appeared surprised at Lord Ryder's apology.

"I couldn't quite work out what they were apologising for," he said.