A press conference Healey was due to hold with Australian Defence Minister Richard Marles on a Portsmouth naval base on Thursday afternoon was cancelled at the last minute.
The resignation, accompanied by a scathing public letter, is another indication that Starmer's authority is draining away and exposes the crisis at the heart of the United Kingdom's government - how it can ramp up defence spending when there is little money to spare and the welfare budget keeps rising.
Healey had been locked in talks with Starmer and finance minister Rachel Reeves over how to meet the additional military spending needed, delaying the UK's Defence Investment Plan, which was due last year.
"You have been unable, and the Treasury has been unwilling, to commit the resources that the nation needs to defend the country," Healey said in his letter to Starmer.
Starmer responded with a letter expressing regret at Healey's resignation, but said the plan would deliver an unprecedented increase in defence spending.
"It will provide the resources our military needs to keep us safe and the clarity the British defence industry needs to plan," Starmer said, adding it would involve "significant reallocations" from other departments to protect the UK in a dangerous world.
Healey's unexpected resignation is another blow to Starmer, who is likely to face a challenge to his leadership in the coming months.
Starmer's health minister, Wes Streeting, resigned last month accusing him of lacking a vision, and another challenger, Greater Manchester mayor Andy Burnham, is attempting to return to frontline politics to launch a leadership bid.
A government source said Starmer had cut spending in other government departments and would deliver a spending plan that would guarantee the capability the armed forces need.
The UK, historically a great military power, was left exposed in March when it was unable to immediately deploy an advanced warship to Cyprus after its air base there was hit by an Iranian-made drone.
Already contending with the United States pivot away from protecting European countries, the UK is the third biggest spender in the NATO military alliance, having been overtaken by Germany in 2024, and the investment plan was aimed at bringing the armed forces to a state of "warfighting readiness".
Starmer has pledged the largest sustained increase in military spending since the Cold War, aiming to lift it to three per cent of national output in the next parliament, meaning tens of billions of pounds of additional money for defence.
But Healey said the plan he had seen would increase defence spending to only 2.68 per cent in 2030, when it will already reach 2.6 per cent next year.
That compares to Germany's plans to spend 3.7 per cent of its GDP on defence by 2030.
General Richard Barrons, formerly commander of the Joint Forces Command and an author of a defence review in 2025 which was supposed to inspire the spending plan, told Reuters he was angry to see the government fail to deliver.
"It's clear they understand the risk that the UK is facing. And they say the right things about defence, and then they are guilty of failing to match those words with money," he said.
Healey said Starmer's proposed increase in funding for defence fell "well short" of what was needed to help the military meet increased threats from Russia as well as demands to increase its presence in the Arctic and the Middle East.
The government has struggled to find the extra cash at a time when the economy is stagnating and both debt and the overall tax burden are at or close to their highest level in decades.
Healey, who had previously served in the governments of former prime ministers Tony Blair and Gordon Brown, was widely liked by colleagues and the defence sector.
One Labour MP said the resignation was a "hammer blow to Starmer".
Another said it was now inevitable Starmer would be forced out of his job within months.
with PA
