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Mr Williamson (63) resigned after The New Zealand Herald reported he had called a high-ranking police officer in connection with Chinese businessman Donghua Liu, who had been arrested on domestic violence charges.
Mr Williamson had previously lobbied ministerial colleagues to grant citizenship to Liu, who was behind a $70 million development in Newmarket, Auckland, the Herald reported. Liu was also a donor to the National Party.
Mr Craig, who was in Dunedin yesterday, said in an interview he believed he would do well by standing in Pakuranga.
He grew up in Howick-Pakuranga and his father taught at Pakuranga College.
While Mr Williamson had not indicated he was retiring from politics, in fact saying he intended standing again in the seat he has held since 1987, pressure may be brought to bear on him to open up the seat for Mr Craig.
Mr Key is short of coalition partners, with Act New Zealand unlikely to win Epsom without a significant nod from Mr Key, and while Peter Dunne is expected to win Ohariu, he is not likely to bring in any extra MPs with him.
Mr Craig said Pakuranga was a strong electorate for the Conservatives but it was still behind Rodney, Epsom and Upper Harbour in membership.
Social Development Minister Paula Bennett has put her name forward for the newly created Upper Harbour seat, Act MP John Banks is stepping down from Epsom and Rodney is held by first-term National MP Mark Mitchell, who is unlikely to give way to Mr Craig.
''Pakuranga is pretty close to the others in membership,'' Mr Craig said.
''We have a support base and a team on the ground.''
He had not yet decided where he would stand.
Overall, the Conservative Party had 4000 paid-up members and 2000 supporters. Mr Key said the phone call by Mr Williamson to the police ''crossed the line''.
Mr Williamson said he had made it clear to Mr Key he was not trying to influence police processes and was only doing the job of an MP.
''However, it is clear that a perception of my trying to influence the outcome has been created and for this reason I have tendered my resignation as a minister today.''
Speaking later at a press conference at his electoral office, Mr Williamson said he was not asking for special treatment for a rich Chinese businessman and financial backers, and that on numerous occasions he had called the police for his constituents and other members of the public.
In Liu's case, there was no intention to do anything about screwing the outcome, but just to work out the focus of it.
''When I hung up, I literally did not see that that was anything other than what a member of Parliament would normally do on behalf of somebody who had asked.''
Mr Williamson said he was feeling ''pretty much shattered and pretty gutted''.
''My family's in a bit of tatters.''
This is not the first time Mr Williamson has been in bother with the party.
He was suspended from caucus on July 22, 2003, after refusing to curtail his criticism of former National Party leader Bill English, whom he blamed for poor performance in the polls.
After Mr English was replaced by Don Brash, Mr Williamson was reinstated.