Dr Tim Kerruish resigned as clinical leader yesterday morning after about 15 months in the role, effective immediately, but will stay on as a specialist.
His position was "untenable" because of a disagreement with management over doctor numbers.
Senior medical staff had "serious doubts" about providing a safe level of cover, he said.
The $2.7 million, 10-bed ED observation unit opening in June or July might not be able to open on weekends because of inadequate staffing, he said.
Senior staff had supported the new unit, he said, on the basis it would be properly staffed.
Dr Kerruish said plans to make permanent two senior registrars on fixed-term contracts "has just all been pulled".
The doctors were well advanced in their training and could act as specialists on weekends, meaning they were a good investment.
"They provided a disproportionate amount of weekend cover .. and that's when we're really short."
In addition to the senior registrars whose contracts end in June, the department was to lose some of its locum cover, also due to funding constraints.
At weekends, ED would have about 40 fewer clinical hours.
"If you work on the basis that we work on our doctors seeing a patient an hour [then] you just have to do the maths."
He was advised this week, after "much prevarication" and requests for information, that due to budget constraints the pair could not be hired.
He had previously been "reassuring" the senior registrars, who had been taken on in November, that their positions were going to be made permanent.
He wasted "a hell of a lot of time", he said, preparing job descriptions and rosters for their expected arrival.
The department was likely to perform worse in the Government's six-hour target for patients, especially at weekends.
Support from colleagues yesterday had been "absolute", he said.
"It's professionally very disappointing to have to do it [resign]."
Southern District Health Board chief executive Carole Heatly was unavailable for an interview, but sent a written statement in which she said it was "regrettable" Dr Kerruish had resigned as clinical leader.
"The role of clinical director is a strategic leadership function and Dr Kerruish's resignation will not immediately impact on the day-to-day running of the emergency department. We will now look at how we best fill this position."
She said the department had hired three extra permanent registrars this financial year.
The pair on short-term contracts were there while specialists' rosters were "aligned" more closely to ED's peak times.
The new observation unit was part of a "substantial investment" this year to improve the department, Ms Heatly said.
Association of Salaried Medical Specialists executive director Ian Powell said only a "masochist" would take over as head of Dunedin's ED, given its issues.
Dr Kerruish was a promising young clinical leader - "exactly the sort of person you want" - who had been "frustrated and sidelined" by the DHB.
Mr Powell called on Ms Heatly to investigate Dr Kerruish's concerns, and if necessary to "spank some bottoms".
