56-year-old businessman-politician Lord Nazir Ahmed resigned, saying that he would not receive a "fair trial" from the party panel and was "very disappointed" with the Labour's handling of the issue.
In his resignation letter, quoted by BBC, Lord Ahmed said he had made the decision with a "heavy heart".
Ahmed was due to appear before Labour's ruling National Executive Committee tomorrow to answer accusations that he blamed a Jewish conspiracy for the jail term that he was given for dangerous driving in 2009.
"My case became more critical because I went to Gaza to support Palestinians. My Jewish friends who own newspapers and TV channels opposed this," the 'Times' had reported him as saying in the interview.
"I do not recall when this interview was held, where this interview was held and nor the person who carried out this interview.
All I know is what has been reported in the 'Times'.
"I believe that justice of the case demands that the film of the interview should be subjected to forensic test in order to search for the truth of the matter.
This has been denied to me.
I am most concerned that the party which has freedom and justice as its core value and which I endear for decades is content to proceed against me on the basis of incredible and untested evidence. That indeed leads me to believe that the decision might have already been made," he adds.
He had been involved in a fatal crash minutes after sending the messages on Christmas Day 2007.
He was freed by the Court of Appeal after serving 16 days of the sentence because of "exceptional" mitigation relating to his community work.
Lord Ahmed, who joined Labour in his teens, was also suspended from the party for three months last year over reports that he offered a USD 10-million "bounty" for the capture of US president Barack Obama and his predecessor, George W. Bush.
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