Labor senator Sam Dastyari has resigned from Labor's frontbench after mounting criticism on the payments he received from a Chinese-linked company.

On Tuesday he apologised for allowing the company to pay off a $1,600 travel debt he owed to the Commonwealth.

Senator Dastyari was the manager of opposition business in the Senate and spokesman for consumer affairs.

He will now sit on the backbench of the Upper House.

Senator Dastyari said accepting the donation was "within the rules but it was wrong".

"I made a mistake and I am paying the price for that mistake," he said.

"I fell short of the duty I owe to the people I am so proud to represent.

"I accept that and I'm here to make it clear I accept the consequences."

'I refuse to be the reason they escape proper scrutiny'

On Tuesday, Opposition Leader Bill Shorten said Senator Dastyari made a mistake but deserved a second chance because he could "make a contribution to this country".

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At the time, Senator Dastyari said he had not offered nor had he been asked for a resignation.

But on Wednesday, he said he did not want the controversy surrounding the donations to distract from Labor's attacks on the Coalition's policy.

"The last thing a Government as bad and divided as this one deserves is a free pass," he said.

"I refuse to be the reason they escape proper scrutiny."

The resignation follows mounting attacks from Government MPs calling on Senator Dastyari to resign.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 5 minutes 13 seconds 5 m Sam Dastyari quits Labor frontbench

Prime Minister Malcolm Turnbull had asked whether Senator Dastyari's reported divergence from Labor's policy on the South China Sea was because of the donation from the Chinese-linked company.

Government documents revealed the Top Education Institute, a Sydney-based company with links to China, reimbursed the Commonwealth after Senator Dastyari blew his parliamentary travel budget.

He said no donors had asked for anything in exchange for the funds.

"No-one has ever asked for anything in return, nor would I have done anything in return," he said.

But despite repeated questioning, Senator Dastyari has not explained why he decided to ask Top Education to cover his bill.

Bill Shorten says Dastyari still has a bright future

Mr Shorten has confirmed he accepted the New South Wales powerbroker's resignation.

"It's the measure of the man that he can stand up, admit he got it wrong and accept the consequences," Mr Shorten said in a statement.

"Sam is a young bloke with a bright future ahead of him. He has a lot more to offer Labor and Australia."

It is a similar description he gave of Mr Dastyari on Tuesday when he was justifying keeping him on the frontbench.

Treasurer Scott Morrison has told ABC's 7:30 Mr Shorten should have acted sooner.

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 8 minutes 51 seconds 8 m Interview: Treasurer Scott Morrison

"Who've would've thought that Sam Dastyari had higher standards than Bill Shorten," he said.

"I mean, it's Sam Dastyari who's taken the decision today, it was Bill Shorten who was continuing to defend him."

South Australian senator Nick Xenophon said Senator Dastyari had done the right thing by resigning.

"He needs to probably spend a bit of time in the so-called political wilderness before he bounces back," he told the ABC.

"He's got lots of energy, lots of good ideas but he stuffed up and he's got to pay a price."

Senator Dastyari said he would remain in Federal Parliament.