Michael Ferguson had been under increasing pressure over delays and cost blowouts to the delivery of new $900 million Spirit of Tasmania ships.
He bowed to the pressure late on Monday, quitting cabinet by resigning as treasurer along with giving up his small business and consumer affairs portfolios.
New berths for the two Spirit vessels won't be ready for their arrival in what the state Labor opposition has dubbed the biggest infrastructure stuff-up in Tasmania's history.
Mr Ferguson had been accused of misleading parliament, which he denies, over when he knew about rising costs and project troubles.
He said resigning was acting in the best interests of Tasmanians.
"I want to thank my Liberal party colleagues for their continued support for me over the past 20 years - and during my time as a minister in cabinet," Mr Ferguson said in a statement.
"I want to thank the Premier (Jeremy Rockliff) for his support and backing over the past few months – both personally and as a colleague – this friendship is one that I have returned to him during my time as his Deputy Premier."
Labor leader Dean Winter was set to move a no-confidence in Mr Ferguson when parliament sits on Tuesday.
"If a fiasco of this magnitude had occurred in any private sector business, the person responsible would have been sacked a long time ago," Mr Winter said.
"The new Spirits project is five years delayed, $500 million over budget and when the ships eventually arrive, they will have nowhere to berth."
The Greens, independents David O'Byrne and Kristie Johnston and Jacqui Lambie Network MP Andrew Jenner had also indicated they have no confidence in Mr Ferguson.
It means a no-confidence motion has the numbers to pass, with the Liberals controlling just 14 of 35 lower-house seats.
Mr Rockliff had maintained full confidence in Mr Ferguson, but said he would respect the will of parliament.
Delivery of two new Spirit of Tasmania ferries has been delayed and over budget. (HANDOUT/RAUMA MARINE CONSTRUCTIONS)
It is the latest headache for the Liberals who were plunged into minority in May 2023 and called an early March election only to be returned in minority with a more diverse cross bench.
They had to redraw deals with cross bench independents Miriam Beswick and Rebekah Pentland in August after the pair were punted from the Jacqui Lambie Network.
Mr Ferguson served as federal member for Bass from 2004-07 before being elected at state level in the same electorate in 2010.
He will continue to serve in parliament.
Mr Rockliff wouldn't be drawn on who could replace Mr Ferguson, saying his right-hand man had been the subject of a smear campaign.
The first new Spirit is expected to be in action in 2025 but it won't be able to sail at full capacity until berth upgrades are completed.
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