Chris Williamson has quit Labour's frontbench after his suggestion of doubling council tax on better-off homes was criticised by the Conservatives.
The Derby North MP is an ally of Jeremy Corbyn but leaves his role as shadow fire and emergency services minister to campaign "on a broader range of issues".
The Labour leader did not immediately announce a replacement but said he was grateful for Mr Williamson's work on fire safety after the Grenfell Tower fire.
Mr Williamson said: "I will be standing down from my role with immediate effect so that I can return to the backbenches, where I will be campaigning on a broader range of issues.
"I will continue to loyally support the leadership of Jeremy Corbyn from the backbenches and hope to be a voice for the party's members."
Mr Corbyn said: "I am grateful for Chris's work on the frontbench, particularly on fire safety following the appalling Grenfell Tower fire.
"I know that on the backbenches, Chris will be a strong campaigner on a range of crucial issues as well as serving his constituents with dedication."
Mr Williamson's plan to hike council tax for homes from Band D to Band H was seized on by the Tories, who mocked up an image featuring the MP and the message "I want to double your council tax", which the party posted on social media.
Under the initiative, the levy could be frozen for properties in Bands A to C, with a progressive rise after that leading to a 20% increase for Band D homes valued between £68,000 to £88,000, and a 100% hike for Band H ones worth more than £320,000.
Mr Williamson stressed the plan was not Labour Party policy and would need to be backed in local referendums before it was introduced.
He told HuffPost UK that the "differential progressive council tax" idea was conceived out of frustration at local authority cuts to generate income to fund services.
Revealing the plan on Wednesday, Mr Williamson told HuffPost UK: "You can imagine the Daily Mail and Daily Express would go to town on a proposition like this.
"It's not a panacea, it's a response to a terrible situation. I think it's an argument that could be won.
"This is not Labour Party policy, it's an idea I came up with at a local level and it's got a little bit of traction in other parts of the country. It's a reaction to an emergency that local government has been placed in."