Japan's public offices election law prohibits politicians from making donations to voters in their home constituencies, and, as such, opposition party members have been vehemently calling for Sugawara to step down.
The scandal comes at a particularly bad time for Prime Minster Shinzo Abe who handed Sugawara the trade minister's portfolio just last month in a Cabinet reshuffle aimed at bolstering public support.
Abe said Friday that Hiroshi Kajiyama, former minister in charge of regulatory reform, will replace Sugawara as trade minister.
Sugawara, 57, who was only appointed to his Cabinet position last month, according to allegations made by the Shukan Bunshun weekly magazine, offered 20,000 yen (184 U.S. dollars) to a bereaved family in mid-October.
Sugawara, whose office also sent flowers to the funerals of numerous bereaved families this year according to the magazine, said he was planning to explain himself in parliament on Friday, but opted to resign so as not to delay a parliamentary session.
After a Cabinet meeting Friday, however, Sugawara told a regular press briefing that he is still trying to determine whether or not he did indeed break Japan's election law as has been alleged.
Adding to his and Abe's ruling Liberal Democratic Party's woes, Sugawara, who is serving his sixth term as a lower house lawmaker, is also potentially in hot water for allegedly handing out free melons and crabs as gifts to his supporters in another scoop carried in the Shukan Bunshun.