Malcolm Turnbull insists Sam Dastyari must leave parliament immediately, a day after the embattled Labor figure announced he would quit the Senate.
The prime minister believes Senator Dastyari foreshadowing his resignation was not enough after he "betrayed" Australia over his links to a Chinese political donor.
"He's still taking money from the taxpayers of the country that he put second," Mr Turnbull told reporters in Sydney on Wednesday.
Senator Dastyari said he would "co-ordinate his departure" with the NSW ALP branch and would not be back next year.
He plans to step down before the February 6 sitting of the NSW state parliament, which will need to formally endorse his replacement.
Treasurer Scott Morrison joined other senior Turnbull government ministers in describing the saga as a failure of Opposition Leader Bill Shorten's leadership.
"Bill Shorten failed another test by not kicking Sam Dastyari out of the Labor Party," he told ABC radio.
Labor frontbencher Richard Marles denied the powerbroker's departure had sparked factional friction within the party.
"It's impossible not to feel sad today and we feel that; it's not tension," Mr Marles told Sky News on Wednesday.
Senator Dastyari has been engulfed in controversy over his dealings with Communist Party-aligned businessman Huang Xiangmo.
The NSW representative and factional ally of Mr Shorten was sacked from his senior parliamentary roles by the leader a week before deciding to resign from parliament.
The coalition government says the only reason Senator Dastyari quit was because he was damaging Labor in the lead up to Saturday's crucial by-election in the Sydney seat of Bennelong
His decision to leave parliament also heads off further scrutiny from the Senate's powerful privileges committee.
The coalition asked the committee to investigate Senator Dastyari's conduct after it was revealed he told Mr Huang - who's donated to both major parties - his phone was probably being tapped by Australian agencies.
Mr Huang's company last year paid Senator Dastyari's personal legal bills, and the businessman appeared with him at a conference held for Chinese media, where he supported Beijing's stance on the South China Sea, contradicting Labor's position.
