Sarah Champion has resigned as shadow women and equalities secretary and apologised for her "extremely poor choice of words" in a newspaper article about child abuse.
The Labour MP warned Britain has a "problem with British Pakistani men raping and exploiting white girls" in a column for The Sun.
Ms Champion later sought to distance herself from the article and claimed it had been altered, with The Sun countering that the column was approved by the MP's team.
Labour leader Jeremy Corbyn accepted Ms Champion's resignation and said he wants to work with her in future, but said his party would not "blame" or "demonise any particular group".
The Equality and Human Rights Commission described it as a "real shame" that Ms Champion had stepped down due to "over-sensitivity about language".
Ms Champion said: "I apologise for the offence caused by the extremely poor choice of words in The Sun article on Friday.
"I am concerned that my continued position in the shadow cabinet would distract from the crucial issues around child protection which I have campaigned on my entire political career.
"It is therefore with regret that I tender my resignation as shadow secretary of state for women and equalities."
Ms Champion declined to comment further when asked to clarify if she was maintaining that her words had been altered.
Her column in The Sun followed an interview for the BBC last Thursday in which she warned people are not raising potential cases of child abuse as they fear being labelled racist.
The Labour MP for Rotherham also told the BBC there was a need to acknowledge the "majority of perpetrators have been British-Pakistani" in the English towns and cities where grooming gangs have targeted girls.
Her remarks emerged after 18 people were convicted of or admitted offences in a series of trials related to child sexual exploitation in Newcastle.
Ms Champion, in The Sun article which appeared the following day, developed her thoughts on the issue.
She wrote: "Britain has a problem with British Pakistani men raping and exploiting white girls.
"There. I said it. Does that make me a racist? Or am I just prepared to call out this horrifying problem for what it is?
"For too long we have ignored the race of these abusers and, worse, tried to cover it up.
"No more. These people are predators and the common denominator is their ethnic heritage."
More than 100 MPs and peers, including Ms Champion, later complained about "Nazi-like" language in The Sun following a comment piece by Trevor Kavanagh in which he asked what could be done about "the Muslim Problem".
Mr Corbyn, in a statement, said: "I have accepted Sarah Champion's resignation and thank her for her work in the shadow cabinet. I look forward to working together in future."
He added to Channel 4 News: "We are not going to blame any particular group or demonise any particular group. The issue is one of safety of individuals."
A spokeswoman for The Sun said: "Sarah Champion's column, as it appeared on Friday, was approved by her team and her adviser twice contacted us thereafter to say she was 'thrilled' with the piece and it 'looked great'.
"Indeed, her only objection after the article appeared was her belief that her picture byline looked unflattering. Her office submitted five new pictures for further use."
Rebecca Hilsenrath, Equality and Human Rights Commission chief executive, said: "It is this climate where problems cannot be frankly discussed and tackled, that led to neglect, for so long, of the victims of these terrible crimes.
'It is a real shame that a respected advocate of equality has felt the need to step down due to an over-sensitivity about language."