Pawar sprang a surprise by announcing his resignation at a hurriedly-called press conference following media reports pointing finger at him over the alleged scam, but said he would continue to lead the NCP legislature party as long as he enjoys its support.
He also ruled out any threat to the stability of the Congress-NCP government following his resignation.
"My conscience does not permit me to stay on as minister. People of the state consider me as a leader who does what he says. I don't want my image to be tarnished and the resignation will send a message to the people that I am not after positions of power," Pawar, nephew of Union Minister and NCP chief Sharad Pawar, said.
"I will now be an ordinary NCP legislator. This will enable me to devote more time to party work," Pawar said, adding he was ready for a probe by any agency including the CBI.
Pawar, whose party has been running an uneasy coalition dispensation headed by the Congress in the state, however, said there was no threat to the government. "The government is stable," he added.
Responding to a volley of questions, he said he did not feel that Chief Minister Prithviraj Chavan or the Congress party was responsible for attempting to tarnish his image.
"But NCP is growing and some people cannot digest this fact," he said, without naming those whom he suspected were behind the move.
Pawar said he had sent his resignation letter to Chief Minister's office and, as Chavan was not in Mumbai, it was handed over to his principal secretary AK Jain. Taken by surprise, Chavan, who had reached Mumbai airport to board a plane for Pune to attend the Ganesh festival, hurriedly returned to his official residence after the news was broken to him.
When contacted by PTI, Chavan said," I am not in a position to comment on this development right now. I will speak to all concerned and then respond."
Asked who would replace him as Deputy Chief Minister, Chavan said a call would be taken by the legislature party.
Reacting to the development, Sharad Pawar said in Kolkata that Ajit Pawar had consulted the NCP leadership on the issue and consent was given for his resignation.
Pawar senior ruled out the possibility of NCP pulling out of the Democratic Front government, saying there was no threat to its stability.
"Nobody will pull out except for Ajit Pawar. We will continue in this government. We don't want instability in Maharashtra. Our support and association with NCP-Congress government is totally there," he said.
On the reported view in a section of NCP that the party should quit the coalition government and support a Congress dispensation from outside, Pawar said,"We will be in the government. We will be part of the government. Party does not support this kind of thinking."
However, the stand taken by Pawar and his nephew notwithstanding, all its 19 ministers, including four cabinet ministers, submitted their resignations to party's state unit chief Madhukar Pichad.
"All ministers have submitted their resignations to me. I will consult Sharad Pawar to discuss the further course of action. The legislature party of the NCP will meet at 2 pm tommorrow," Pichad said.
There have been reports in the media that Pawar, who was Water Resource Minister for a decade between 1999 and 2009, had cleared 38 projects worth Rs 20,000 crore in 2009 without clearance of Governing Council of Vidarbha Irrigation Development Corporation (VIDC).
According to reports, Pawar and VIDC executive director approved the projects without placing it before the governing council comprising state's Chief Secretary and officials of the finance, planning agriculture and water resource departments for deliberation and clearance, as mandated under the rules.
It has also been alleged that tenders were approved at inflated rates.
Chief Minister Chavan's announcement to bring a white paper on the status of irrigation projects after state's economic survey revealed that only 0.1 per cent additional area was brought under irrigation in a decade despite a whopping Rs 72,000 crore being spent during the period, had also reportedly riled the NCP.
On accusations that he cleared proposals in haste, Ajit Pawar told reporters he took quick decisions whether in favour or against any proposal.
"This is my style of functioning. I don't have the habit of piling up files on my desk," he said.
Pawar said he had fulfilled promises he made as a minister and the state will be free from load-shedding by December 2012. Similarly, he said, the state had earned good revenue from sales tax.
He said the state had a vast drought-prone area and water from irrigation projects was also used for industrial and drinking water purposes.
"There are several pending irrigation projects resulting in cost escalations. There are several requests for lift-irrigation projects which are costly but are granted in drought-prone areas. Many such projects have been granted approvals before I became irrigation minister," he said.
Pawar said he had backed the demand for a white paper on when approvals to pending irrigation projects were given, what was the budgeted expenditure, cost of land acquisition etc. "what is the need for just talking about it and not bringing out a white paper," he asked.
To a question on whether he will rejoin the ministry after being cleared of allegations, Pawar said nobody has held him guilty. "I am resigning because my conscience does not permit me to continue," he said and declined to comment on what stand he would take if Chief Minister Chavan rejected his resignation.