The homelessness minister, Rushanara Ali, has resigned after reports emerged that she evicted tenants from her east London property before increasing the rent by almost £700 a month.

In a letter to Keir Starmer, the Labour MP said she had “at all times” followed “all legal requirements” and taken her responsibilities “seriously”.

But she added: “It is clear that continuing in my role will be a distraction from the ambitious work of the government. I have therefore decided to resign from my ministerial position.”

In response, the prime minister thanked Ali for her “diligent work” at the Ministry of Housing, Communities and Local Government, saying it would have “a lasting impact”.

He said: “I know you will continue to support the government from the backbenches and represent the best interests of your constituents in Bethnal Green and Stepney.”

Her resignation follows reports that four tenants who rented the house owned by Ali were given four months’ notice in an email last November and told their lease would not be renewed because the property was due to be sold.

After the tenants left the property, which they had rented for £3,300, they said it was seen relisted at nearly £4,000 a month, the i Paper said. It reported that the property was relisted for rent after no buyer was found.

Questions were also raised over whether the tenants were offered the option to stay and whether the decision to re-let the property undermined the reasons given for ending their tenancy.

The renters’ rights bill, which is due to come into force next year, will ban landlords who have ended a tenancy in order to sell a property from relisting it for a higher rent. The bill will also end the use of fixed-term tenancies.

Ali had been widely criticised for apparent hypocrisy. She has spoken out against private renters being exploited and said the Labour government would “empower people to challenge unreasonable rent increases”.

A spokesperson for Ali said on Thursday afternoon: “The tenants stayed for the entirety of their fixed-term contract and were informed they could stay beyond the expiration of the fixed term while the property remained on the market, but this was not taken up and they decided to leave the property.”

It is understood that after an end-of-tenancy inventory was carried out, the managing agent requested payment from the tenants to cover the costs of repairs. This was not authorised by Ali and was cancelled after she intervened.

Mairi MacRae, the director of campaigns and policy at Shelter, said: “It beggars belief that after months of dither and delay, the government’s own homelessness minister has profited from the underhand tactics the renters’ rights bill is meant to outlaw.

“This story serves as a damning reminder that the cards are fundamentally stacked against renters. Unscrupulous landlords cannot be allowed to continue the practice of ‘fire-and-rehire’ evictions, where they slap renters with a section 21 only to hike up the rent a few months later and relet the property at a higher price.”

Kevin Hollinrake, the Conservative party chair, accused Starmer of presiding over “a government of hypocrisy and self-service”.

He said: “It is right that Rushanara Ali has now quit the government following our calls for her to go.

“Keir Starmer promised a government of integrity but has instead presided over a government of hypocrisy and self-service. Once again it’s one rule for Labour and one for everyone else.

“With a fourth minister now having to step down in disgrace, it is clear the British public deserve so much better than the endless sleaze and scandal of this Labour government.”

Peter Wishart, the Scottish National party’s deputy leader at Westminster, said earlier on Thursday: “Once this shameful story broke, Labour’s homelessness minister should have immediately resigned.”

Jess Barnard, a former chair of Young Labour and a member of Labour’s national executive committee, said: “Seems an appropriate time to reiterate MPs should not be landlords and landlords should not be Labour MPs.”

The house, near Ali’s Bethnal Green and Stepney constituency, is listed for sale at £894,995. The property was reportedly put up for sale last November and the price was reduced in February.