Lord Ahmed was due to appear before Labour's ruling National Executive Committee on Wednesday to answer accusations that he blamed a Jewish conspiracy for his dangerous driving jail term.
He insists he does not recall making the alleged comments, but in his resignation letter said he felt he would not get a fair hearing and therefore had no choice but to resign from the party.
His solicitor Stephen Smith said he would not be able to receive a ''fair trial'' from the Labour panel.
Lord Ahmed was suspended from the Labour Party in March after The Times reported he blamed his 2009 prison sentence - for sending text messages shortly before his car was involved in a fatal crash - on pressure placed on the courts by Jews ''who own newspapers and TV channels''.
The Muslim peer allegedly told an Urdu-language broadcaster in Pakistan that the judge who jailed him for 12 weeks was appointed to the High Court after helping a ''Jewish colleague'' of Tony Blair during an important case.
Mr Smith questioned the reliability of the evidence against Lord Ahmed, saying: ''The evidence is flawed, in my view it is unreliable and yet they seem to be accepting it as right. In those circumstances I don't think he can get a fair trial.''
Lord Ahmed and Mr Smith have called for The Times to release the interview footage for it to be forensically examined. In his resignation letter he claims he has been denied this, but that he believes the justice of the case demands the film be subject to forensic tests.
He said: "I don't want to appear before any kangaroo court where the rules of justice have been denied. All I want is any evidence in front of me so I can look at it and defend myself. I can't defend myself if there is no evidence produced."
Lord Ahmed said he had "never been anti-semitic" and had "unreservedly apologised" for any offence caused to the Jewish community.
A Labour Party spokesman said: ''I can confirm that he has resigned from the party.''
In his resignation letter, Lord Ahmed wrote:"I believe that justice of the case demands that the film of the interview should be subjected to forensic test in order to search for the truth of the matter.
"This has been denied to me.
"I am most concerned that the Party which has freedom and justice as it core value ... is content to proceed against me on the basis of incredible and untested evidence. That indeed leads me to believe that the decision might have already been made."
Lord Ahmed said he felt he had no choice but to step down, however he said his heart would always be with the Labour Party. He also said he did not intend to do anything that would 'unnecessarily provide bad press' for the Labour party or do anything that would alienate voters.
Lord Ahmed added: "I will conclude by saying my thanks to the Labour Party – the Party I have served for nearly four decades. I wish it well in the forthcoming elections and whilst I may be resigning my heart will always be with the Party
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