Yigal Guetta, from the Shas party, announced his resignation on Wednesday.
In a recent radio interview, the 51-year-old politician disclosed he had a gay nephew who invited him to his wedding.
Mr Guetta said he attended out of respect for his relative and despite his own reservations.
The disclosure caused outrage in the ultra-Orthodox community, where homosexuality is taboo, and led to calls from rabbis for the politician to step down.
Shas chairman Arieh Deri said he respected Mr Guetta’s decision to resign.
Israel accepts gays serving openly in its military and Tel Aviv is a popular gay-friendly destination.
But among the country’s conservative ultra-Orthodox community, homosexuality is considered a sin and publicly shunned.