Housing Secretary Robert Jenrick has accepted he approved a £1bn east London housing development unlawfully.
The 1,500-home development on the Isle of Dogs, Tower Hamlets, was approved on 14 January – the day before community charges placed on developments were increased.
The timing of the decision meant Conservative Party donor Richard Desmond avoided paying around £40m.
Mr Jenrick accepted his decision was unlawful but denies any bias.
The government’s own planning inspector advised against the scheme saying it needed to deliver more affordable housing in what is London’s poorest borough.
The inspector also said that with buildings up to 44 storeys high, the development harmed the character of the area and views of Tower Bridge.
Mr Jenrick rejected that advice and approved planning permission for the project.
Local councillors asked the High Court to order the government to disclose emails and memos around the deal.
Rather than disclosing the correspondence, the Housing Secretary’s lawyers conceded the timing of his decision “would lead the fair-minded and informed observer to conclude that there was a real possibility” that he had been biased.
Mr Jenrick accepted the original decision was technically unlawful but maintains there was no actual bias towards Mr Desmond.
“We don’t believe there was any bias,” Mr Jenrick told the BBC.
“But to ensure there was complete fairness we judged it was right for the decision to be re-determined.”
Tower Hamlets Council and the Greater London Authority have welcomed the announcement that a different government minister will now decide upon the project.