Letters from former minister Denis MacShane admitting expenses abuses cannot be used to prosecute him because they are protected by Commons rules, it was revealed on Friday night.
Officials said parliamentary privilege meant the key correspondence was withheld from police when they launched a probe into the MP two years ago.
And the documents are still not legally admissible - even though they were published in a Commons sleaze report on Friday.
The situation emerged after the Standards and Privileges Committee detailed how Mr MacShane knowingly submitted 19 false invoices over a four-year period.
The cross-party group said the invoices were "plainly intended to deceive", branding it the "gravest case" they had dealt with.
The former Labour Europe minister pre-empted the recommended punishment of 12 months' suspension from the House by announcing his resignation as an MP this evening.
He insisted he had not gained personally from the abuses but wanted to take "responsibility for my mistakes".
"I have been overwhelmed by messages of support for my work as an MP on a range of issues but I accept that my parliamentary career is over," he said.
"I appreciate the committee's ruling that I made no personal gain and I regret my foolishness in the manner I chose to be reimbursed for work including working as the Prime Minister's personal envoy in Europe."
A senior Labour source said: "Denis has done the right thing."
Parliamentary Standards Commissioner John Lyon found the MP had entered 19 "misleading" expenses claims for research and translation services from a body called the European Policy Institute (EPI), signed by its supposed general manager.
However, the institute did not exist "in this form" by the time in question and the general manager's signature was provided by Mr MacShane himself or someone else "under his authority".
"The effect was that, unbeknown to the (expenses) department, Mr MacShane was submitting invoices to himself and asking the parliamentary authorities to pay," the Commissioner said.
One letter from the MP to Mr Lyon in October 2009 described how he drew funds from the EPI so he could serve on a book judging panel in Paris.
"I was invited by Jacques Delors to join a committee to draw up a short-list for the European Book of the Year on which I still serve," he wrote.
"Again, there were no funds to cover the costs of travel and staying in Paris for these meetings and since I used them to try and advance the case of British writers, including helping to steer the committee to choose the work of British historian (redacted) in 2008 I thought it reasonable to use EPI money to cover these costs."
Mr Lyon also described how Mr MacShane had a "cavalier approach" to the use of public money in purchasing computer equipment which was not used solely in support of his parliamentary inquiries. In some cases departing interns were allowed to take away a parliamentary-funded laptop.
Mr MacShane also claimed for his own "extensive" travel across Europe, entertaining European contacts and building a "personal European library".
The Commissioner said Mr MacShane further breached the Code of Conduct by refusing to co-operate with his inquiry.
Mr MacShane blamed the British National Party, who were behind allegations against him and had won a "three-year campaign to destroy my political career".
"Clearly I deeply regret that the way I chose to be reimbursed for costs related to my work in Europe and in combating anti-semitism, including being the Prime Minister's personal envoy, has been judged so harshly," he said.
Scotland Yard dropped the case against Mr MacShane in July after receiving advice from the CPS on an initial evidence file.
The force said tonight: "We are aware of the report and will be assessing its content in due course."
However, a senior Commons official said police would not be able to rely on Mr McShane's letters to the commissioner.
Clerk of the Journals Liam Laurence Smyth, who is responsible for parliamentary privilege issues, insisted the correspondence was protected because they were collected by the commissioner as part of parliamentary proceedings.
He admitted that many people would find the situation "surprising", but said privilege was necessary for Parliament to function effectively.
Even if Mr MacShane had openly admitted criminal behaviour in his evidence, the police would not be able to rely on the comments in court, Mr Laurence Smyth said.
He confirmed that police were not provided with any of Mr MacShane's evidence or the other information amassed by the commissioner when the Commons authorities referred the case to them in October 2010.
However, he suggested police may now be able to use the letters as a "map" to further their own inquiries.
Tory MP Philip Davies called for the Met to reopen its investigation, and expressed alarm that Mr MacShane was being protected by parliamentary privilege.
"I think that is a very sad state of affairs. All it will do is further undermine the reputation of parliament," he said.
"There will be millions of people out there who think that MPs are above the law and that is what the perception will be.
"It seems that someone who should be brought to justice isn't going to be."
The Shipley MP went on: "As far as I am concerned if someone has committed an offence then they should face the full force of the law and to be protected by parliamentary privilege is most unsatisfactory and it will be shocking for parliament's reputation.
"It cannot be good for the reputation of parliament when the people who set the laws are seen to be ducking them."
Suggested For You
SUBSCRIBE AND FOLLOW
Get top stories and blog posts emailed to me each day. Newsletters may offer personalized content or advertisements.Learn more