"I have become aware that according to the Italian government, I am a citizen of Italy", Canavan said at a media conference this evening, due to his mother's application for Italian citizenship more than a decade ago.
He said he was not born in Italy and had never set foot in the country.
'Until last week I had no suspicions I could possibly be an Italian citizen.
Nationals Senator and Minister for Resources and Northern Australia Matt Canavan has resigned from cabinet after discovering he was an Italian citizen but is refusing to quit Parliament.
Attorney-General George Brandis says Senator Canavan may not be in breach of rules forbidding dual citizens from holding office because the Queensland senator was unaware of the application made on his behalf by his mother. I have, since then, taken steps to check my citizenship status with the Italian authorities, and that has confirmed that I was registered as an Italian citizen in January 2007.
Federal MPs are not allowed to serve as dual citizens under section 44 of the constitution.
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His possible resignation comes after Greens co-deputies Scott Ludlam and Larrissa Waters had to leave parliament after discovering they also hold dual citizenships.
But he said he would not be resigning as senator until he had legal advice. "However, given the uncertainty raised by this matter, I will stand aside until the matter is finally resolved, and resign as the Minister for Resources and Northern Australia".
Canavan said he was 25 years old at the time. He has never been to Italy.
But he stressed that he was not quitting as senator because he had not yet obtained "definitive legal advice as to whether my registration as an Italian citizen, without my knowledge or consent, was valid under Italian law". "Barnaby Joyce, will act in that capacity until Senator Canavan's status is resolved", the statement read.
If Canavan turned out to be a dual citizen it would be an embarrassing blow for Prime Minister Malcolm Turnbull who last week said resignations of Waters and Ludlam showed "incredible sloppiness".
Prior to his election in 2013, Canavan worked as an executive at KPMG and as an economist with the Productivity Commission.