The West Australian senator announced her resignation on Thursday after previously claiming she had been isolated and exiled by her caucus colleagues after siding with the Greens on a pro-Palestinian motion.
"The ongoing genocide in Gaza is a tragedy of unimaginable proportions," she told reporters in Canberra.
"I am torn, deeply torn ... sadly, I do not believe our principles align with those of the leadership of the Labor Party.
"With a heavy heart but a clear conscience, I announce my resignation from the Australian Labor Party."
Fatima Payman will sit on the Senate's crossbench after quitting Labor. (Lukas Coch/AAP PHOTOS)
Senator Payman said she had informed the prime minister and would sit on the crossbench effective immediately.
Anthony Albanese belled the cat on the defection in parliament on Wednesday, saying he expected more news about her future in coming days "which will explain exactly what the strategy has been over now more than a month".
It was a veiled swipe at reports Senator Payman had met with a political strategist and a grassroots Muslim group set to target Labor MPs at the next election.
Senator Payman said she departed with a "heavy heart but a clear conscience".
"Unlike my colleagues, I know how it feels to be on the receiving end of injustice," she said.
"My family did not flee from a war-torn country to come here as refugees for me to remain silent when I see atrocities inflicted on innocent people."
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