The abrupt resignation came just over a month after Sugawara assumed his new post as trade minister in a Cabinet reshuffle by Japanese Prime Minister Shinzo Abe.
The reshuffle was aimed at boosting public support for an administration that has been plagued by ruling Liberal Democratic Party ministers' gaffes and scandals, with the latest impropriety dealing a fresh headache for the Japanese premier.
Abe, who has had to deal with nine of his Cabinet ministers resigning since he returned to power in 2012, on Friday conceded to reporters that the onus of responsibility lies with him for appointing Sugawara in the first place.
"The responsibility lies with me for having appointed him," Abe told reporters having accepted Sugawara's resignation, although sources close to the matter said that Sugawara was asked to relinquish his post by the prime minister's office in a bid to lessen the damage to the administration.
The latest scandal to rock Abe's administration is based on allegations made by the Shukan Bunshun weekly magazine that Sugawara offered 20,000 yen (184 U.S. dollars) to a bereaved family in mid-October.
Japan's public offices election law prohibits politicians from making donations to voters in their home constituencies, and, as such, opposition party members had been vehemently calling for Sugawara to step down.
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 the parliamentary session.
"I apologize for stepping down at a time when there is so much that needs to be done," Sugawara told reporters.
"I do not want the Diet session to be held up, to be unable to deliberate on legislation because of me. Nor do I want to hold up economic and industrial policy, nor the government as a whole," he also said.
Abe said Friday that Hiroshi Kajiyama, 64, former minister in charge of regulatory reform, will replace Sugawara as trade minister, and Kajiyama was formally sworn in during the afternoon by Emperor Naruhito.