Prime Minister Tony Abbott said Senator Sinodinos had stood aside for the good of the government until the ICAC investigation had been resolved.
“Senator Sinodinos has done the right and decent thing,” Mr Abbott said.
Senator Sinodinos told the Senate chamber shortly before question time that he would be standing down while the ICAC hearing was ongoing.
Watch: Sinodinos stands down as Assistant Treasurer, Karen Middleton reports
“I do not want this sideshow to be an unnecessary distraction from the important work of the government, which I am proud to serve,” he said.
“Whilst this process is underway, I will therefore be standing aside as assistant treasurer.”
He thanked his colleagues for their “ongoing faith” in his integrity.
He said ICAC was the appropriate forum for him to answer further questions.
Senator Sinodinos’s duties will be assumed by Finance Minister Mathias Cormann.
Opposition Leader Bill Shorten asked Mr Abbott when he became aware of the issues that caused the senator’s resignation.
“I have nothing to add to the statement I made before,” Mr Abbott responded.
Senator Sinodinos has been dragged into a NSW Independent Commission Against Corruption (ICAC) inquiry into a business dealinvolving former state Labor powerbroker Eddie Obeid.
The inquiry has heard Senator Sinodinos – who in 2008 was NSW Liberal Party treasurer and a member of the board of Australian Water Holdings – stood to gain tens of millions of dollars if the deal between the privately held AWH and state-owned Sydney Water went through.
The minister, who is due to appear before ICAC as a witness at a later date, has consistently denied any wrongdoing.