The opposition had been calling for Dirceu's resignation since the ruling Workers' Party was accused last week of paying bribes to lawmakers to ensure their support, undermining the party's promises to root out corruption in government.
Dirceu has been called the brains behind Lula and was credited with the shift of the Workers' Party to the centre from the left that secured its 2002 election win. He ran or was involved in every one of Lula's four campaigns for the presidency.
Dirceu trained as a guerrilla in Cuba during Brazil's 1964-1985 military rule and was among political prisoners exchanged by military authorities for the US ambassador to Brazil, Charles Elbrick, who had been captured by the army's opponents.
Flanked by ministers at the presidential palace, Dirceu told a news conference on Thursday he would return to his seat in the lower house of Congress, where he hoped he could clarify "the unfounded allegations against my government".
"I will mobilise the Workers' Party to combat those that want to destabilise the Lula government," Dirceu said. "I always dreamt of governing Brazil next to President Lula."
"I will mobilise the Workers' Party to combat those that want to destabilise the Lula government"
Brazilian cabinet chief
The crisis, which has alarmed markets, started last week when Roberto Jefferson, head of the government-allied Brazilian Labour Party, accused the Workers' Party of paying lawmakers $12,000 a month for support in Congress.
An angry Jefferson told a congressional ethics council on Tuesday that Dirceu knew about the bribery scheme and that if he did not leave the government, he would "turn an innocent man, President Lula, into a culprit".
Government allies said Dirceu, who was head of the Workers' Party from 1995 to 2002, wanted to leave to avoid trouble for the administration.
Dirceu's departure was expected to be just the first step in wider cabinet changes that should take place next week and were likely to bring more allies into the government.