Labor senator Sam Dastyari resigns over links to Chinese businessman.

Labor senator Sam Dastyari has quit the federal parliament but insists he’s a patriotic Australian, despite recent scrutiny of his dealings with a Chinese businessman and political donor.

The NSW representative and factional colleague of Bill Shorten was sacked from his senior parliamentary roles by the Labor leader last week.

He’s now decided the best service he can render the federal party is to not return to the Senate in 2018.

“I know Australia needs a Labor government and I refuse to let my personal situation put that prospect at risk,” he said in Sydney on Tuesday after declaring his love for the party.

"In my deliberations, I've been guided by my Labor values, which tell me that I should leave if my ongoing presence detracts from the pursuit of Labor's mission.

"It is evident to me we are at that point."

The soon-to-be ex-senator said he was a "loyal, patriotic Australian".

He would leave the Senate with "nothing but good thoughts for our country and for our people" and knowing he had always honoured his parliamentary oath.

Mr Shorten said it was the right decision.

"Sam Dastyari is a good, decent and loyal Australian, and an effective parliamentarian, but his judgement has let him down and now he has paid the heaviest price," he said in a statement.

"I am sure Sam will continue to make a valuable contribution to our country in whatever he chooses to do."

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The coalition government had asked the Senate's powerful privileges committee to investigate Senator Dastyari's conduct after it was revealed he had told Communist Party-aligned businessman Huang Xiangmo - who's donated to both Labor and the coalition - his phone was probably being tapped by Australian agencies.

Mr Huang's company last year paid Senator Dastyari's personal legal bills and the businessman had appeared with him at a media conference held for Chinese media, where he contradicted Labor's position on the South China Sea issue.

Prime Minister Malcolm Turnbull on Monday said Senator Dastyari had "quite plainly been acting in the interests of another government or another power".

Senator Dastyari said he would continue to be an active, grassroots NSW Labor Party member.

The party now has a few months to choose his replacement, who needs to be endorsed by a joint sitting of the NSW parliament, which is unlikely to happen before February 6, 2018.

Federal parliament is due to resume in February.