Waters said she only discovered her status on Monday after seeking legal advice in the wake of fellow Green party member Scott Ludlam having to step down because he holds dual citizenship with New Zealand.
Her resignation will trigger a countback of the vote, which will likely see the second candidate on the Greens' Queensland Senate ticket - former Australian Democrats leader Andrew Bartlett - approached to fill the vacancy.
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On Friday, the Greens' other co-deputy, Scott Ludlam, revealed that he was a citizen of New Zealand as well as Australia, which made him ineligible for the Senate job he has held since July 2008.
Queensland Senator Malcolm Roberts, who was born in India, said he contacted Indian authorities in 2014 to check he was not an Indian citizen.
Senator Larissa Waters breastfed her daughter in the chamber while moving a motion on black lung disease.
Greens Senator Larissa Waters and her baby in Senate Chamber at Parliament House in Canberra.
"I had not renounced since I was unaware that I was a dual citizen", Waters explained in a press conference earlier.
Waters explained her parents had told her she could pursue Canadian citizenship but when she hadn't by the time she was 21, she didn't bother and assumed she only held Australian citizenship. The rules on eligibility for prospective MPs are clearly set out in the literature for prospective candidates provided by the Australian Electoral Commission and on the Parliament of Australia website, not to mention in Section 44 of the constitution.
Both Waters and Ludlam are coming under fire from rightwing opponents who claim that the two now-former senators should have to repay their salaries.
"This was my error, something I should have checked when I nominated for pre-selection in 2006", Mr Ludlam said in a statement in which he apologised "unreservedly".
Waters said: "From being the first woman to breastfeed in federal parliament, to being part of stopping the dumping of dredge spoil on the Great Barrier Reef, overturning cuts to domestic violence services and keeping key environmental decision making powers in federal hands, I have relished every moment to make positive change as a Greens Senator".
"It is entirely my responsibility - it wasn't the way I was hoping to go out".