Andrew Crawford has denied attempting to keep a botched green energy scheme open.
He was named by a senior civil servant during an explosive hearing at Stormont as the person who exerted pressure to keep the Renewable Heat Incentive scheme running when officials wanted to close it.
It has ended up costing taxpayers a predicted £490m (€567m) over the next 20 years and precipitated the collapse of powersharing at Stormont.
Mr Crawford had been most recently a special adviser with the Department of Agriculture.
Ms Foster said she accepts his resignation with regret, describing him as a “faithful servant” to the party and the people of Northern Ireland: “Andrew has felt that given what occurred yesterday and indeed today that he was becoming a distraction to the important work of his minister, but indeed he was becoming the story.
"Anyone who knows Andrew Crawford knows he’s a very private person and he didn’t want to become the story. I have accepted his resignation regretfully, I have to say.”
The resignation was announced minutes after Sinn Féin finance minister Máirtín Ó Muilleoir ordered a public inquiry into the RHI. Mr O Muilleoir said there is a need to “get to the truth”.
The RHI furore precipitated the collapse of Stormont powersharing.
Mr Ó Muilleoir said: “This inquiry will be impartial and objective. I will not interfere in its work. It will be tasked to get to the truth of this issue.”
Last week DUP leader Ms Foster called for a public inquiry. She wrote to Sinn Féin this week in relation to the establishment of a probe.
In recent weeks Sinn Fein insisted a public inquiry would have been too time-consuming.
Ms Foster welcomed Mr Ó Muilleoir’s announcement: “We wanted to say we very much welcome the change of heart from Sinn Fein in setting up this public inquiry. It is something I have been wanting for some considerable time.”
She added: “Earlier this week I wrote to the other parties, and indeed Sinn Féin, suggesting a way forward and now I am very pleased the inquiry is going to be set up and finally we will get some due process in around these matters and we will get the truth in relation to what happened with the Renewable Heat Incentive scheme.”
The Treasury is concerned about overspending on Northern Ireland’s botched green energy scheme, a senior civil servant yesterday said. Exchequer ministers’ postbags are being filled with questions about what is going on, said Andrew McCormick, permanent secretary in Stormont’s economy department.
Mr McCormick was giving evidence to a Stormont committee, which also heard evidence from those who availed of the scheme.
Elaine Shaw, from the Renewable Heat Association, represented the mushroom industry and said it had reduced growing costs.