The director of the prestigious London School of Economics (LSE), Sir Howard Davies, has resigned over its links to Libyan leader Muammar Gaddafi.

Davies said he recognized the university's reputation had suffered and he had to quit, the BBC reported Friday.

According to the publication, Davies accepted GBP 300 000 for a research from a foundation run by Gaddafi's son Seif al-Islam Gaddafi, who is LSE alumnus.

The LSE council has launched an independent inquiry to establish the extent of the university's relationship with Libya and Gaddafi's son and to decide on guidelines for future donations.

The inquiry will be carried out by Lord Woolf, former Lord Chief Justice of England and Wales and former chair of the Council of University College London.

Davies has expressed regret for his decision to visit Libya to advise the regime about financial reforms, calling it a "personal error of judgment".

"I have concluded that it would be right for me to step down even though I know that this will cause difficulty for the institution I have come to love. The short point is that I am responsible for the school's reputation, and that has suffered," he said, as cited by the BBC.

He also said he thought it was "reasonable" to accept the money, but it turned out to be a "mistake".

There were risks involved in taking funding from sources associated with Libya which should have been weighed more heavily in the balance, the former LSE director concluded in his resignation letter.

"I made a personal error of judgment in accepting the British government's invitation to be an economic envoy and the consequent Libyan invitation to advise their sovereign wealth fund. There was nothing substantive to be ashamed of in that work and I disclosed it fully, but the consequence has been to make it more difficult for me to defend the institution," Davies said.     

He will remain at his post until a successor is found.

According to Peter Sutherland, chair of the LSE's court of governors, Davies had been an "outstanding" director over the past eight years.

The LSE has already announced it is launching an investigation over claims that Seif al-Islam Gaddafi plagiarized his PhD thesis, which was awarded in 2008.