Lorenz Caffier admitted to the purchase last week, but faced backlash after saying it was a "private matter".
On Tuesday, Mr Caffier said he no longer had the "necessary authority" to continue as interior minister for the state of Mecklenburg-Western Pomerania.
It comes as Germany's government ramps up its efforts to combat the far right.
In a statement, Mr Caffier criticised the media's "uninhibited reporting", insisting he was stepping down to "protect" his family, employees and others around him.
He also said suggestions that he was linked to far-right groups himself hurt him "deeply".
Mr Caffier has admitted to buying a pistol for hunting purposes in 2018 from a man dubbed Frank T, who operated a shooting range. The facility was used to train police special forces, but was also frequented by suspected members of far-right group Nordkreuz.
Nordkreuz (German: Northern Cross) is a so-called "prepper" organisation whose followers train for doomsday scenarios like the collapse of national order. Several members have had links to the police and military, and the group has been accused of preparing to carry out political assassinations.
As interior minister, Mr Caffier was responsible for overseeing all police and intelligence operations against groups like Nordkreuz.
He said that, at the time, authorities were unaware of Frank T's alleged links to the group. Frank T has also denied the allegations, and investigations by public prosecutors are ongoing.
In July 2017, a whistleblower spoke to German authorities about the activities of Nordkreuz and mentioned Frank T's involvement, according to local news outlet Tagesschau. However the testimony presented "no actual evidence of right-wing extremist activities" by Frank T.
Mr Caffier admitted that, "from today's perspective," he should not have bought the gun from him, but stressed that "it wasn't the acquisition that was a mistake, but my handling of it".
During recent years, the government has sought to clamp down on the emergence of far-right groups around the country, particularly in the police and military.
In June 2017, inspections were ordered on all military barracks when Nazi-era memorabilia was found at two of them.
Earlier this year, Germany's defence minister also ordered the partial dissolution of the elite KSK commando force due to right-wing extremists in its ranks.
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