Shashi Tharoor, a former United Nations diplomat, met with Prime Minister Manmohan Singh and several senior leaders of the ruling Congress party on Sunday before sending in his resignation later that night.
Tharoor found himself embroiled in the controversy that stems from an auction last month when a group made a successful bid of more than $330 million for the Kochi franchise in the Twenty20 cricket league.
IPL chief Lalit Modi later revealed details about the owners of the team, questioning why 25 percent of the team was given to a group that included a friend of Tharoor's.
It was alleged that the friend's shares were really intended as a hidden gift to Tharoor.
A statement from the prime minister's office said that Tharoor's resignation was forwarded to the President Pratibha Patil who accepted it.
The opposition raised the issue in Indian parliament on Monday. Finance Minister Pranab Mukherjee said income tax authorities were already investigating the sources and channels of funding of the team owners.
"No guilty (party) or wrongdoer will be spared," Mukherjee told agitated lawmakers some of whom demanded a ban on the Twenty20 cricket league.
Gurudas Dasgupta, a Communist Party of India leader, said a committee of lawmakers should probe the funding of various teams.
Earlier Sunday Tharoor's friend, businesswoman Sunanda Pushkar, announced that she would resign from her position on the team and give up her stake in the Kochi franchise.
Opposition politicians had demanded Tharoor resign, but the politician had earlier defended himself, saying there was no reason for the investors to bribe him since his ministry has nothing to do with the league and he had no way to influence an auction determined solely by who bid the most money.
Tharoor said he did help put together the winning investment group, but only because he wanted to bring a team to the state of Kerala, part of which he represents in Parliament.