Shadow chancellor Alan Johnson is resigning from Labour leader Ed Miliband's frontbench team, citing "personal" reasons.
He is replaced by Ed Balls, previously the shadow home secretary. Mr Balls' wife, Yvette Cooper, takes over the home affairs brief.
Mr Johnson said he had "found it difficult" to cope with issues in his private life while shadow chancellor.
His resignation comes after just three-and-a-half months in the job.
It follows several recent gaffes when discussing tax and economic matters, including appearing in an interview not to know the rate of National Insurance paid by employers.
Mr Johnson, a former postman and trade union leader, was also reported to have clashed with his party leader over the policy of introducing a graduate tax to replace university tuition fees.
In a statement, the Hull West MP said: "I have decided to resign from the shadow cabinet for personal reasons to do with my family.
"I have found it difficult to cope with these personal issues in my private life whilst carrying out an important frontbench role.
"I am grateful to Ed Miliband for giving me the opportunity to serve as shadow chancellor of the exchequer. He is proving to be a formidable leader of the Labour Party and has shown me nothing but support and kindness.
"My time in Parliament will now be dedicated to serving my constituents and supporting the Labour Party. I will make no further comment about this matter."
Mr Johnson declined to comment as he left a Labour Party meeting in his constituency.
BBC political editor Nick Robinson said the resignation had "come out of the blue" and it was not one of those stories that people had been gossiping about and wondering if it would become public.
However, he said Westminster was now "abuzz with rumours about his marriage" and stressed Mr Johnson had not been "pushed out" because of his handling of the shadow chancellorship.
"This is a deeply uncomfortable personal story which I fear Alan Johnson may see spread out in newspapers and will have to tackle in public as well as in private," he added.
Mr Miliband told the BBC he had accepted the resignation "with great regret", adding: "As shadow chancellor and a politician who held five cabinet positions, Alan showed real leadership on issues that mattered to families across our country, warning of the dangers posed by the government's gamble on growth and jobs, promoting educational opportunity and delivering neighbourhood policing.
"Ed Balls is an outstanding economist and is hugely qualified to take our economic message to the country."
In a BBC interview, he said: "Alan Johnson was the right man for the job. He's had to stand down for personal reasons, nothing to do with the job."
Mr Balls, who ran against Mr Miliband in last year's Labour leadership contest, coming third, said: "It is a great honour to be appointed to this post, and to succeed my friend and colleague Alan Johnson whose commitment to social justice and service to the Labour Party is second to none."
As Mr Miliband reshuffles his frontbench team, Douglas Alexander becomes shadow foreign secretary and Liam Byrne is made shadow work and pensions secretary.
Tessa Jowell becomes shadow Cabinet Office minister.
Sixty-year-old Mr Johnson, an MP since 1997, served as home secretary, health secretary and education secretary under Gordon Brown.
Conservative deputy chairman Michael Fallon said: "Alan Johnson is a good man and I wish him well. But what really beggars belief is the appointment of Ed Balls...
"He was Gordon Brown's first lieutenant... [They] brought the government to the brink of bankruptcy."