Mr Scully has been under pressure to go since claiming last week that a report by former assistant police commissioner Norm Hazzard into the Cronulla riot was not completed.
The government was later forced to release the report but Mr Scully said it was only a working draft.
In parliament today, Mr Scully rejected a claim by Nationals leader Andrew Stoner that he rang the ABC last Monday and told the newsroom a Nine Network report was wrong to claim he was sitting on the report.
But the ABC later issued a statement insisting Mr Scully had rung its newsroom last Monday night about the Nine Network story.
"Today I made a second error in the house in the period of two weeks," Mr Scully told reporters.
"I believe the community would find that unacceptable and difficult to explain.
"Following my discussion with the premier he and I agreed it would be difficult to sustain and accordingly after discussing with him I've tendered my resignation as police minister."
Mr Scully said he loved representing his western Sydney seat of Smithfield.
"I joined the Labor Party when I was 18 with a passion and love for those in need of a hand," he said.
"I spent many, many years in the (Labor Party) branches pursuing a preselection to become the member for Smithfield. I have loved representing them, I have worked hard for them.
Mr Scully did not answer questions or reveal whether he will resign from parliament.
Portfolio reshuffle
The state’s deputy premier and transport minister John Watkins will be given the extra responsibility of police minister.
Roads Minister Eric Roozendaal will also become Assistant Minister for Transport, with specific responsibility for buses, ferries and taxis.
Water Minister David Campbell will fill Mr Scully's other vacated position as Leader of the House.