Stefano Stefani told a meeting of his Northern League Party at Badia Calavena in northern Italy that he had called Berlusconi to announce his resignation from the post of minister.
"He who raised a weak, humble and small voice to say that it is time to stop slapping the Italian people hard on the face, has been struck down," Stefani said, referring to himself.
"But you know that no one from the Northern League is tied to his seat. I really don't care (about stepping down)," the 64-year-old told party members.
Stefani whipped up a hail of protest when he called Germans "uniform, supernationalistic blonds who loudly invade Italy's beaches" each summer.
He also said Germany itself was "drunk with inflated self-importance" in a letter which appeared last week in La Padania, the mouthpiece of the Northern League.
German Chancellor Gerhard Schroeder was so angered by the comments that he cancelled his summer vacation to Italy's Adriatic coast, planned for later this month.
The resignation of the junior minister came only a few hours after Deputy Prime Minister, Gianfranco Fini, told European journalists that Berlusconi would bow to Berlin's wishes and ask Stefani to step down.
Berlusconi was at first unwilling to remove Stefani from his post as the Northern League is a lynchpin party in Berlusconi's centre-right coalition, Forza Italia.
But calls for his resignation, both from within Italy and Germany, would not die down. Berlin refused to comment on Stefani's resignation. "It is not for us to comment on a sovereign decision," government spokesman Bela Anda said, adding that Schroeder would return to Italy next year.
Relations between Berlin and Rome have come under serious strain since Italy took over the European Union presidency on 1 July.
Heckled by a German deputy while making a speech at the European parliament, Berlusconi had said last week the EU lawmaker would be an ideal choice for the role of a Nazi concentration camp guard in an upcoming Italian film.