It was the second resignation by a Chilean minister in the past month, after Bachelet's top spokesman, Ricardo Lagos Weber, quit in early December, leaving the government 21 months into office.

"The president has signaled she wants to start the second half (of her term)," said Velasco. "We had a pleasant meeting this afternoon in which I handed her my resignation, non-negotiable, as the minister of the interior and ... it was accepted."

Bachelet's office did not announce a successor to replace Velasco, but said Felipe Harboe, the deputy interior minister, would assume Velasco's duties in the interim.

Chile's first woman president's approval ratings are slipping amid rising crime and many voters blame her for failing to fix major problems with the public transit system in the capital of Santiago.

Chileans are also dissatisfied that they are not seeing more benefits from a copper bonanza that has driven strong economic growth over the past three years.

El Mercurio newspaper, citing sources in the government palace, La Moneda, said on its Web site that the outgoing Velasco was upset about being marginalized in important decisions.

His resignation came amid strong rumors of other pending changes in the Cabinet. Bachelet's transport minister, Rene Cortazar, also offered his resignation in December, but she refused to accept it.

"Cabinet decisions will be made by the president, in the moment that she deems pertinent," chief government spokesman Francisco Vidal told reporters.

Bachelet last reshuffled her Cabinet in March 2007, when she fired the defense, presidency, justice and transport ministers. She also split the duties of the mining ministry, creating a post of energy minister.

In July 2006, Bachelet replaced her interior, economy and education ministers, four months into her government after student protests.

(Reporting by Antonio de la Jara and Rodrigo Martinez, writing by Pav Jordan)