UPDATE: Frankston MP Geoff Shaw has reportedly quit the parliamentary Liberal Party.
The decision has potentially huge ramifications for an under-pressure Baillieu government, which holds power with a one-seat majority.
Mr Shaw resigned from the party, Health Minister and the party's leader in the Legislative Council, David Davis, said Wednesday.
The beleagured MP is expected to remain in the lower house as an independent.
Government MPs were called into Premier Ted Baillieu's office meeting Wednesday morning.
SEE: Geoff Shaw to stay on as independent after quitting Liberals
A number of ministers walking into the Premier’s office appeared worried. Matthew Guy, Michael O’Brien, Kim Wells and Robert Clark were among them.
Police said on Wednesday that they were still investigating allegations of misconduct in public office by the Frankston MP and ‘‘as the investigation is ongoing, it would be inappropriate to comment further’’.
The Liberal-National coalition holds 45 seats in the 88-seat lower house and the ALP, 43.
Mr Shaw's resignation leaves the Coalition with 44 seats, the ALP with 43. The Frankston MP will hold the remaining seat on the cross-bench.
Mr Davis has told the upper house he is not aware if there had been discussions with Mr Shaw about whether he will guarantee supply - effectively the passage of money-related leglislation.
If Mr Shaw does not guarantee supply, parliament will not be workable for the Coalition.
Mr Shaw won his seat – Frankston North – by 51.7 per cent to 48.3 per cent on a two-party-preferred basis in 2010. He won the seat from the ALP with a 4.4 per cent swing.
The government’s majority will be protected for the next two months, as the next member for the safe Labor seat of Lyndhurst will not be elected until May 18, replacing former minister Tim Holding, who has already left parliament.
A Liberal source said speculation that the move by Mr Shaw was due to changes to electoral boundaries was ‘‘just nonsense’’.
Opposition leader Daniel Andrews weighed in, saying the government was ‘‘in absolute crisis".
Mr Shaw has weathered controversy many times in his short parliamentary career.
The 45-year-old – a qualified financial planner and accountant – won the lower-house seat of Frankston in 2010 from ALP incumbent Alistair Harkness.
Besides being an MP, Mr Shaw runs two small businesses: an accounting firm and a hardware factory. In May 2012, it was alleged his staff, as well as Mr Shaw himself, had used his parliamentary car for business related to the hardware factory.
In December 2012, Victoria Police announced a criminal investigation the affair, investigating Mr Shaw for misconduct of public office for rorting his taxpayer-funded car and parliamentary fuel card.
A week later, the Gillard government launched a review into Mr Shaw over allegations he illegally or dishonestly accessed federal assistance for his private businesses. Mr Shaw received individual payments of up to $1500 each from the Commonwealth to hire three long-term unemployed workers for his hardware firm under an employment assistance scheme.
The latest development comes amid mounting speculation about Mr Baillieu's leadership.
Liberal backbencher Bill Tilley said while he believed Mr Baillieu was listening, the government’s leadership team needed to revamp the way it dealt with the backbench.
‘‘It’s a management thing,’’ Mr Tilley said.
‘‘There should be some further and significant conversations: how to interact with the executive and the backbenchers to deliver the right, the proper and accurate messages to Victoria.’’
Mr Tilley is annoyed with Mr Baillieu over comments he made about him in parliament on Tuesday.
Mr Baillieu told parliament Mr Tilley quit his role as parliamentary secretary to Police Minister Peter Ryan because his conduct was inconsistent with the role.