"Tonight I have accepted the resignation of Finance Minister Damien Tudehope," Premier Dominic Perrottet said in a statement late on Friday.
Mr Perrottet said he had known Mr Tudehope for many years, describing him as a person of integrity and honesty.
"At all times he has undertaken his responsibilities as a minister with the highest of standards," he said in the statement.
The premier said the resignation came despite the receipt of advice clearing Mr Tudehope of breaching the ministerial code of conduct.
"I will take on the role of Minister for Finance and Minister for Employee Relations," Mr Perrottet said.
Confirming the resignation, Mr Tudehope defended the propriety of his disclosures but said he was stepping down as he did not want his integrity, nor that of his party, to be the "subject of repeated political attacks".
"The events of the last 24 hours have provided an unnecessary distraction for the government at a time when the most important thing for the people of New South Wales is to be concentrating on the choice before them," he said in a statement.
Earlier, in a snap press conference, the member of the legislative council told reporters he had not known about the shares, which had been within a "diversified" fund in his superannuation.
"I didn't know about the holding of the shares and I'm aware there was a profit made and I've given an assurance to the premier, I will donate any profit ... to charity," he said.
"I say absolutely, categorically that in relation to any decision-making I have been involved in that it has been in the interest of the people of this state and never with an eye to any possible interest I may have."
Transurban recently reported record half-year earnings of $1.66 billion, having collected $835 million in tolls from Sydney drivers in six months.
Ten of the toll giant's 21 Australian toll roads are in Sydney, making up most of the city's network of tunnels and motorways.
While Mr Tudehope presented letters to the premier disclosing the fund, he said he wasn't aware of the Transurban shareholding until a journalist contacted him earlier this week.
He had been involved in government discussions involving Transurban during his time in cabinet.
But Mr Tudehope said he was not involved in any discussions about the sale of the government's centrepiece WestConnex motorways and tunnels to Transurban in 2021 for $11 billion.
"I was never, ever involved in any discussions relating to WestConnex ... either I was not on the relevant committee or at relevant cabinet meetings," he said.
"If I had known I had shares in Transurban at the time ... I would have felt obliged and I would have disclosed that.
"I did not know."
When pressed, the minister estimated the value of the shares had increased by about $6000 since he became a minister in 2019.
The shares were sold on Friday morning, he said.
Labor MP Penny Sharpe criticised Mr Tudehope's conduct saying it was emblematic of a government that had grown out of touch with voters.
"Under this government, the people of western Sydney have been forced to pay more tolls, while a government minister is making money off their tolls," she said.
"This is indicative of a tired, stale, 12-year-old government who think they can get away with anything."
