Rushanara Ali has resigned as homelessness minister after it emerged she evicted four tenants from a property she owns in east London then re-let it weeks later for £700 more a month.

The tenants were told in November last year their fixed-term contract would not be renewed because Ali’s east London home was being placed on the market for sale.

Shortly after they left the property, they discovered it had returned to the market with the monthly rent increased from £3,300 to £4,000, The i Paper first reported.

Ali announced her resignation on Wednesday evening after hours of intense criticism from housing charities and opposition parties. She had been under pressure to explain the contradiction between the stated reason for ending the tenancy and the decision to re-let the home at a higher price after no buyer was found.

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”.

Starmer swiftly responded to her resignation letter and 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.”

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”.

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.

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.”

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.”

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.

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.