Defence Secretary John Healey has quit in a massive blow to the Prime Minister.
Mr Healey accused Sir Keir Starmer of failing to properly fund the Defence Investment Plan (DIP) which “could make the country less safe”.
In a stinging resignation letter, he told the PM it was something he “never expected to write”.
"This era for defence required further investment through the defence investment plan,” he said.
“The excellent and extensive cross-government work that completed in January - overseen by you, me and the chancellor - confirmed the scale of the challenge and the rising demands on defence.
“Since then, you have been unable, and the Treasury has been unwilling, to commit the resources that the nation needs to defend the country at this time of rising threats."
The DIP financial settlement, which Mr Healey was given on Monday afternoon, falls “well short of what is required for defence and the country at this dangerous time”, he added.
It is understood that the MoD was offered only £10billion of extra cash. Mr Healey told the Prime Minister that a 0.08% of GDP increase to defence was not enough to keep the country safe.
“You know what defence needs,” he told Sir Keir in his letter.
“You made the argument for this powerfully in your speech at the Munich Security Conference back in February.
“Without a DIP that meets the moment in this way, I am being forced to make decisions that would reduce the readiness of our forces and increase the risk to personnel on operations, and could make the country less safe.
“After explaining to you that I would not be able to accept a DIP settlement that does not give our forces the resources they need, I am now left with no other option than to submit my resignation as your defence secretary.”
An ally of Mr Healey said: “Healey has been one of the most loyal Labour men for over 30 years. He’s only ever wanted a successful Labour government.”
Tory shadow defence secretary James Cartlidge said Mr Healey had shown “integrity” by resigning.
In a video posted to social media, Mr Cartlidge said: “Whatever our political differences, I have always admired John Healey’s integrity and he’s shown that in this action.
“He has done the decent thing. He was left with no choice, he had to resign given that the Prime Minister was offering such a tiny amount of money for our armed forces at a time when we face war on two fronts, the war in Ukraine and conflict in the Middle East.
“He had to do this. I respect John Healey for that.
“But I say this to the Prime Minister, with the world as it is, this is not good enough and he is paying the price for prioritising a bigger welfare state over a stronger armed forces.”
A Government source said the Prime Minister “will continue to act in our national interest”.
“It is this Labour Government and this Labour Prime Minister that is delivering the largest sustained boost to defence spending since the Cold War,” they added.
“We cut the international aid budget to make record investment in our armed forces, and now the PM is imposing cuts on other government departments to fund billions more.
“The Defence Investment Plan will deliver the capability our armed forces need.
“We will always do what is right, and needed, to keep the country safe.”
