Estelle Morris dramatically quit as Education Secretary last night after becoming engulfed in a string of rows.
Tony Blair urged Ms Morris to reconsider when she met him on Tuesday.
But after a night of reflection she tendered her resignation, citing problems with the media.
The Prime Minister accepted it "with reluctance" and said he expected her to return to Government.
Teacher union leaders expressed shock and sadness.
Doug McAvoy, general secretary of the National Union of Teachers, said: "She was a minister who cared about education and understood the problems teachers faced."
David Hart, general secretary of the National Association of Head Teachers, said: "I think it's a tragedy - I think it's a tragedy for her and a tragedy for the education service.
"She made mistakes but it would be difficult to find somebody as committed as her to the education service."
Phil Willis, Liberal Democrat Education spokesman and Harrogate MP said: "I am very sorry that a Secretary of State who had a genuine interest in education standards should have fallen on the altar of targets set by her own Government."
However, Shadow Education Secretary Damian Green said it was "welcome but overdue".
Ms Morris's resignation comes after a difficult summer and autumn dominated by the A-levels controversy, criticism when the Criminal Records Bureau failed to complete background checks on teachers and attacks from unions over her classroom assistants plans.
A promise to resign if targets were not met, made when she was Schools Minister, came back to haunt her this week when 11-year-olds results came out.
In her resignation letter, Ms Morris said she had felt at her happiest in her previous post as Schools Minister.
"I am less good at strategic management of a huge department and I am not good at dealing with the modern media," she wrote.
"All this has meant that, with some of the recent situations I have been involved in, I have not felt I have been as effective as I should be or as effective as you need me to be."
In his reply, Mr Blair said: "I have no doubt that you are doing an excellent job, as I told you, and have every confidence in you.
"Though I regret it, I respect totally the decision you have reached and the typically forthright and honest way that you communicated it to me."
Mr Blair will announce her successor today.
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