By political correspondent Emma Griffiths
Video: Arthur Sinodinos stands aside (Lateline)
Photo: Standing aside... Arthur Sinodinos. (AAP: Alan Porritt)
Assistant Treasurer Arthur Sinodinos has stood aside from his frontbench post while a corruption inquiry investigates the dealings of a company he was involved with before entering Parliament.
It is the first ministerial casualty for the Abbott Government and a particular blow to lose a key minister from the Treasury portfolio less than two months before the Government hands down its first budget.
Senator Sinodinos is one of several people connected to Australian Water Holdings (AWH), which is under investigation by the Independent Commission Against Corruption (ICAC).
On Monday, the ICAC hearing in Sydney heard claims that Senator Sinodinos, a former AWH director and NSW Liberal Party treasurer, stood to make up to $20 million from a contract with the state-owned Sydney Water Corporation in January 2012.
The Opposition had been pressuring the Senator to stand aside while the inquiry was underway, citing a conflict of interest with his role as Assistant Treasurer.
The ICAC's destruction hits both sides
Coverage of the ICAC proceedings will re-confirm the public's worst fears about what goes on behind the closed doors of government, writes Quentin Dempster for The Drum.
On Wednesday afternoon, Senator Sinodinos told the Senate he would step down from his frontbench role for the duration of the inquiry.
"I do not want this sideshow to be an unnecessary distraction to the important work of the Government which I am proud to serve," he said.
"While this process is underway I will therefore be standing aside as Assistant Treasurer.
"I thank my colleagues for their strong support and for their ongoing faith in my integrity.
"The ICAC is an important forum, the appropriate forum, for me to answer any questions in relation to this matter."
PM backs Sinodinos, says he 'has done the right thing'
Prime Minister Tony Abbott, who has stood by his colleague, told the House that Finance Minister Mathias Cormann would take on the role as Acting Assistant Treasurer.
Mr Abbott described his former frontbencher as a man of "great distinction".
"Senator Sinodinos has done the right and decent thing ... as you'd expect from someone who has given our country such long and faithful service," Mr Abbott said.
Analysis from political correspondent Louise Yaxley
It is a blow for the Government because one of its experienced and respected figures has had to stand aside, but in handling it this way, Senator Sinodinos is able to contain the issue. As you've heard, he insists he'll be vindicated and that this is a sideshow.
It's not clear how long the Independent Commission Against Corruption process will take. Senator Sinodinos will give evidence in coming weeks, and that'll be at the start of a three week inquiry into this broader issue.
There will then be a submissions process and the commissioner will later report her findings to state parliament after that.
So it's unclear, but it does mean that Senator Sinodinos is unlikely to be around when the Government hands down its first budget and through that crucial period when the findings of the Commission of Audit are released.
Labor had hoped for a scalp - Oppositions are of course always keen to get ministerial scalps. They had tried to target the Assistant Health Minister Fiona Nash last month over a conflict of interest.
The Opposition stopped short of calling for her to quit as well, and what happened there was that her chief of staff resigned - that came late on a Friday afternoon. Her senior advisor quitting saved her job.
So there's been some pressure on ministers; we haven't seen any sackings or resignations [but] we have seen some ramifications - the most dramatic one came today.
"I look forward to his restoration to the ministry."
On Tuesday Senator Sinodinos told Parliament he would appear before ICAC as a witness and would be "vindicated" in relation to his involvement with AWH.
But Labor has continued to push the issue in Question Time, with Opposition Leader Bill Shorten using every opportunity to press the Prime Minister on the details of the Senator's involvement with AWH.
"If the former Assistant Treasurer Arthur Sinodinos did the right and honourable thing as the Prime Minister has just said he has, why was he appointed in the first place?" Mr Shorten asked.
Mr Abbott consistently responded in defence of his former frontbencher.
"Senator Sinodinos was appointed to the Ministry because he is a man of great distinction ... and high competence," Mr Abbott said.
Earlier, Labor had successfully suspended proceedings in the Senate to move a motion to force the Assistant Treasurer to make a detailed statement about his involvement with AWH.
Senators spent the entire morning debating whether Senator Sinodinos should explain himself to the Parliament.
The Opposition Leader in the Senate, Penny Wong, and veteran Labor Senator John Faulkner have led Labor's attack, which has been strongly defended by Government senators Eric Abetz, George Brandis and Mitch Fifield, who said Labor's assault was nothing more than a smear.
Appearing on 7.30 on Wednesday night, Senator Abetz defended the Prime Minister's handling of questions about Senator Sinodinos.
"What the Prime Minister may or may not have known at the end of the day is not relevant to the actual issues that ICAC will need to explore and is exploring," he said.
"Senator Sinodinos has done the right thing by stepping aside voluntarily."
Video: 'No conflict of interest' says Eric Abetz on Arthur Sinodinos (7.30)
