Luke Donnellan stepped down from cabinet on Monday just hours after federal MP Anthony Byrne told an Independent Broad-based Anti-corruption Commission inquiry the duo were involved in branch stacking.
Mr Byrne said both he and Mr Donnellan paid for party memberships as part of a "well-entrenched" operation led by former powerbroker Adem Somyurek to boost their faction's influence in Melbourne's southeast.
He told the inquiry he spent about $10,000 in the past five years on memberships, while cash from Labor Party fundraisers went into a "kitty" kept in his office and used for the same purposes.
Mr Byrne said Mr Donnellan and Mr Somyurek would have spent "roughly the same amount, perhaps more in the past couple of years".
Mr Andrews said he did not expect to receive a call from Mr Donnellan at lunchtime on Monday tendering his resignation, "but he made a difficult decision".
Minister Martin Pakula told reporters outside parliament on Tuesday Mr Donnellan was a "valued colleague" and he was "sorry to see him go".
When asked if any MP accused of branch stacking should resign, Mr Pakula said "every situation needs to be judged on its merits".
"These things have been happening across both political parties for decades and I think the circumstances of every situation is quite different," he said.
Mr Pakula denied any involvement in branch stacking but said he suspected "there are some (MPs) that are anxious" as IBAC hearings resume on Tuesday.
Deputy Premier James Merlino, who takes on Mr Donnellan's disability, ageing and carers portfolios, and Transport Infrastructure Minister Jacinta Allan also denied paying for other's Labor memberships.
Mr Somyurek quit the Labor Party last year before he was expelled following a Nine Network investigation, which caught him handing over cash and using parliamentary staff to create fake branch members.
His factional allies Robin Scott and Marlene Kairouz also resigned from cabinet following the expose. All three deny wrongdoing.
Mr Byrne said he observed Mr Somyurek and Ms Kairouz coercing electorate and ministerial staff to do factional work during paid hours "to the exclusion of just about anything else".
Branch stacking involves recruiting or signing up members to a political party's local branch to influence candidate pre-selections.
It is not illegal, but is against Labor Party rules to pay for other's memberships.
In a statement, Mr Donnellan said that while he had breached party rules he had "never misused public funds or resources in any way. And this has absolutely nothing to do with my staff".
"However, I don't believe it is possible or appropriate to maintain my ministerial responsibilities given these rule breaches," he said.
Shadow Attorney-General Tim Smith told reporters at parliament every minister who is adversely named in IBAC's inquiry should stand down.
"This Labor government is rotten to the core ... At the end of the day, the buck stops with the premier and his government looks increasingly corrupt," he said.
Mr Byrne will continue to give evidence at the inquiry on Tuesday. He will be followed by former electorate officer Ellen Schreiber.