British Treasury Minister David Laws, a key architect of plans to rein in a gaping budget deficit, resigned on Saturday after revelations about his expenses, dealing a blow to the new coalition government.

Conservative Prime Minister David Cameron replaced Laws, the Chief Secretary to the Treasury, within 24 hours of his apology after a newspaper reported the Liberal Democrat had claimed tens of thousands of pounds in parliamentary expenses for rent he passed on to his long-term male partner.

Danny Alexander, a former close aide to Liberal Democrat leader Nick Clegg, moves from the role of Scottish Secretary to replace Laws in the number two role in the finance ministry - one of the most senior cabinet posts the Liberal Democrats have.

The loss of Laws less than three weeks after the formation of the government is a blow to Britain's first coalition government for 65 years. The coalition took power after the Labour Party lost the May 6 election, ending its 13-year rule.

Laws, an economist with a background in London's financial services industry, was a key player in the Conservative-Liberal Democrat coalition. He appeared to have struck up an effective relationship with Conservative finance minister George Osborne.

The two men were drawing up spending cuts to rein in Britain's record peacetime budget deficit, which exceeds 11 percent of gross domestic product. The coalition is due to present an emergency budget on June 22.

'I do not see how I can carry on my crucial work on the budget and spending review while I have to deal with the private and public implications of recent revelations,' Laws, a millionaire, said in his resignation statement.

Alexander, who has no experience of high office, will now take over the role of seeing through a series of tough austerity measures needed to save Britain billions of pounds.

The loss of Laws is a setback to Cameron, who has made tackling deficit his top priority. It is also an unwelcome distraction for a new government eager to focus on the economic challenges and to start a new chapter after a scandal over parliamentary expenses that dogged the final months of the previous Labour government.

Cameron had promised a new, open administration that abides by strict rules of conduct. Clegg, the deputy prime minister, told BBC television: 'David Laws has taken a very painful decision today. It was his decision alone.'

Cameron called Laws' decision 'honourable' and Conservative finance minister Osborne expressed sadness at his sudden departure.

Osborne said in a statement it was 'as if (Laws) had been put on earth' to do the job of Treasury Chief Secretary. Laws went before parliament this week to defend details of the initial 6.2 billion pounds ($9.05 billion) of departmental savings, including cutting down on ministerial perks.

He had won the respect of his Conservative colleagues and the willingness to make cuts had reassured markets worried about a deficit forecast to top 160 billion pounds this year.

Alexander, who is 38, was little known outside parliament before the election. He rose to prominence during poll campaign as Clegg's chief of staff and as a negotiator in the days of talks that led to the formation of Britain's first coalition government since World War Two. The coalition agreement is a delicate balance of the two parties' policy priorities.

By appointing another Liberal Democrat to replace Laws, Cameron has been careful not to upset the party balance in the coalition cabinet.-Reuters