The minister, Anil Roberts, has denied any wrongdoing and had resisted calls from opposition parties and the public to resign over the scandal in the LifeSport programme, which is aimed at training youths to keep them away from crime.
Persad-Bissessar said she was "disillusioned, disappointed and distressed by the level of deception and dishonesty" associated with the programme, which was found to have a series of irregularities including theft and procurement breaches.
"The expectation of the public that something will be done when wrongs are committed in public office is now the hallmark of good governance," she told reporters. "I have decided to accept the offer of resignation as Minister of Sport from Mr. Anil Roberts."
Persad-Bissessar's four-year-old government has been rocked by a series of scandals. One cabinet minister was accused of slapping a lover, another of grasping an air hostess's breast.
Jack Warner, a former FIFA vice president, resigned as National Security Minister last year following a damning report by CONCACAF, the confederation responsible for football in North and Central America and the Caribbean, which published detailed allegations of financial mismanagement.
However, Warner was re-elected to parliament a few months later.
(Reporting by Linda Hutchinson-Jafar; Editing by Simon Gardner and Ken Wills)
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