The scandal, dubbed "Cowgate," has greatly embarrassed Prime Minister Najib Razak ahead of general elections widely expected to be called by June.
After months of resisting calls from critics to step down, Shahrizat Abdul Jalil said she will resign as minister of women, family and community on April 8 once her term as senator ends.
Shahrizat said her decision had nothing to do with the cattle project run by her husband and three children but that she is stepping down as a "responsible member of the government." She will, however, stay on as chief of the women's wing of the ruling Malay party.
The scandal emerged last year after the auditor-general's annual report said the National Feedlot Center run by Shahrizat's family had not met its goal of making the country 40 percent self-sufficient in beef production by 2010.
Since then, opposition parties have accused the company of using a government loan allocated for cattle rearing to purchase property including luxury condominiums in Malaysia and Singapore and other personal items. Shahrizat's family has denied any wrongdoing, saying the company was allowed to use the loan at its discretion and that the properties would earn it rental income.
Police have recommended that the company's directors be charged with criminal breach of trust but the attorney-general has asked police to conduct further investigations.
Najib said Shahrizat's resignation was a sacrifice in the interest of the government and party.
"Although there is no proof so far that she had committed any offense in terms of law, because the (project) has drawn controversy and dispute, she was willing to withdraw from the government," the national Bernama news agency quoted him as saying.
Analysts said Shahrizat's resignation wasn't surprising as Najib isn't likely to renew her senatorship.
"Cowgate is a big blow to Najib as it shows he is slow to act on allegations of high-level corruption," said James Chin, a political science lecturer at Monash University in Malaysia.
Najib's National Front coalition suffered its worst performance in 2008 polls, losing more than a third of Parliament's seats to a resurgent opposition amid widespread discontent over the government's handling of problems such as corruption and racial discrimination.
While the ruling coalition isn't expected to lose power in upcoming polls, scandals such as Cowgate make it tougher for Najib to consolidate his power. General elections are not due until 2013 but are widely expected in the next few months.
Copyright © 2012 The Associated Press. All rights reserved.
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