Sam Groth, a first-term MP who has been touted as a future leader, announced late on Friday that he could not continue with his portfolios for youth, tourism, sport and events.
"Following yesterday's Federal Court judgment against John Pesutto and his subsequent decision to remain as Liberal leader, I have decided to resign from his front bench," the 37-year-old Nepean MP said in a statement.
Mr Groth, a former professional tennis player who retired after the 2018 Australian Open, gave no indication that he intended to challenge Mr Pesutto but told the Herald Sun in July he wanted to be premier.
Victorian Opposition Leader John Pesutto says he wants to continue in the job. (Con Chronis/AAP PHOTOS)
His decision to step down has split members of the party, with some praising him and others critical of the move.
One Liberal MP, speaking to AAP on condition of anonymity, questioned whether Mr Groth had enough experience to take on the top job.
"He's got no hope of getting the numbers, I know that. (Berwick MP) Brad (Battin) will probably rise to the top," they said.
"I think Brad will be in and John will end up having to step down. It's just going to be too hard."
Another Liberal MP commended Mr Groth for quitting and encouraged anybody else with "irreconcilable differences" with Mr Pesutto to follow suit.
"If you feel the same way, don't be a soft c***, take a leaf from Sam," they said.
"I fear for Sam ... my concern for him is that he's been sold a pup by other people gyrating around him because those people gyrating around him have more of a vested interest in killing John than they actually do in supporting Sam."
A third Liberal MP said Mr Groth might not have gone out of a limb so much as "tripped on his laces".
"Sam said at the election he was 'ready to serve' ... he might have served a double fault," they said.
Questions over the viability of Mr Pesutto's leadership were raised after Justice David O'Callaghan awarded $300,000 in damages to former Liberal MP Moira Deeming on Thursday.
Mr Pesutto made defamatory comments in media interviews and a party expulsion motion following a March 2023 rally Mrs Deeming attended.
But the opposition leader doubled down on his decision not to resign on Friday, instead insisting the party "move on".
"I always had a determination to continue to lead," he told reporters.
His refusal did not stop Liberal MP Bev McArthur suggesting a leadership spill be held, declaring if Mr Pesutto is confident in his position "he can test it out".
AAP has been told five or six state Liberal MPs must sign paperwork and submit it to the party room secretary to call a special meeting.
There is a five business day waiting period before such a meeting can then take place.
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