The mini-budget he presented last month, which contained controversial debt-funded tax cuts, has been blamed for the economic turmoil which saw the British pound plunge to a 37-year low against the U.S. dollar. At the same time, the cost of government borrowing and mortgage rates surged.
"As I have said many times in the past weeks, following the status quo was simply not an option. For too long this country has been dogged by low growth rates and high taxation -- that must still change if this country is to succeed," he said in his resignation.
Amid tremendous pressure, Kwarteng made a U-turn earlier this month on plans to scrap the 45 percent income tax rate for the highest earners.
Jeremy Hunt, former foreign secretary of the United Kingdom, was appointed as acting chancellor of the exchequer immediately after, Downing Street said in a statement on Friday.
In a press conference, Truss confirmed Kwarteng's resignation, calling him "a great friend" and saying she was "incredibly sorry to lose him."
Referring to Hunt as "one of the most experienced and widely respected government ministers and parliamentarians," Truss said the new chancellor would deliver the medium-term fiscal plan at the end of this month.
In a second U-turn on the policies set out in the mini-budget, the prime minister said UK's corporation tax would rise to 25 percent, reversing the promise in the mini-budget of freezing the tax rate at 19 percent.