The 68-year-old, who has been the area’s Conservative MP since 2005, is also standing down as chairman of Parliament’s Intelligence and Security Committee.
He was suspended from the Tory Party on Monday (February 23) and said he would “fight for the opportunity to continue” as the Conservative candidate in May’s general election.
But on Tuesday he told getwestlondon he was intending to seek one further term as MP for Kensington before retiring from the House of Commons but feels it is not fair to his constituents during this uncertain time so decided to step down.
Sir Malcolm was secretly filmed by undercover reporters from the Telegraph and Channel 4’s Dispatches apparently offering his services to a fictional private Hong Kong firm for cash and saying he had “useful access” to every British ambassador in the world.
Sir Malcolm, who earns £67,000 as an MP, was recorded saying: “I am self-employed - so nobody pays me a salary. I have to earn my income.”
He added his usual fee for half a day’s work was “somewhere in the region of £5,000 to £8,000”.
Since then, he has admitted this was a “silly” comment which he only meant in regards to work outside his role as an MP - which is currently legal.
He denies any wrongdoing, as does Labour’s Jack Straw, the other MP embroiled in the scandal.
The Tory grandee said: “I have received tremendous support from my Constituency Association and from many constituents in Kensington over the last two days.
“However, I have been pondering whether it is fair to my colleagues and friends in Kensington to remain the prospective Conservative candidate for the forthcoming General Election.”
A committee has been formed in parliament to examine the scandal which Sir Malcolm says he “warmly welcomes” as it will be “excellent opportunity for an objective assessment of the allegations” made.
He added: “It is unlikely that it will be able to finish its deliberations until well into March and there, obviously, can be no certainty as to its conclusions.
“I am conscious, therefore, that Kensington Conservatives are faced with serious uncertainty until the end of March as to whether I will be able to be their candidate. If I could not they would have little time to choose a new candidate.
“I am also aware that even if the committee reach a favourable conclusion as to these allegations the controversy will remain during what is certain to be a heated General Election and, indeed, for many months thereafter until the Parliamentary Commissioner for Standards has completed the necessary enquiry.
“This is entirely my personal decision. I have had no such requests from my constituency association but I believe that it is the right and proper action to take.
“As regards the allegations of Channel 4 and the Daily Telegraph I find them contemptible and will not comment further at this time.”
Sir Malcolm will continue his public and political life and said he is much looking forward to doing so, but did not specify in what form this would take.
There is no indication yet of who will step in as the Kensington candidate.
On Monday, Ladbrokes had Sir Malcolm at 6/4 not to stand as the Tory candidate in Kensington for May’s General Election but, regardless of the candidate the bookmakers statistics show the constituency is set to remain blue with Labour the nearest challengers at 25/1.
Sir Malcolm Rifkind's time in politics
1946: Born in Edinburgh
1966: Graduated from Edinburgh University with law degree
1969: Called to the Bar
1970-74: Local Edinburgh councillor
1974: Elected as MP for Edinburgh Pentlands
1975: Supported Margaret Thatcher in Conservative leadership election
1976: Appointed Conservative spokesman on Scottish affairs
1976: Resigned position in protest at Tory’s lack of enthusiasm for establishment of a Scottish Assembly
1979: Appointed Scottish Office Under-Secretary for Mrs Thatcher
1990: Made Transport Minister
1992: Made Defence Secretary under John Major
1995-97: Foreign Secretary
1997: Lost Edinburgh Pentlands seat and knighted
2005: Returned to Parliament as Kensington & Chelsea MP
2010: Elected as MP for Kensington (newly-formed constituency)
2015: Steps down as MP and chairman of Intelligence and Security Committee due to ‘cash for access’ scandal