Ian Hollinshead, a county and borough councillor, was overpaid almost £8,000 in housing and council tax benefits for nearly three years after failing to declare changes in his employment.
Following the conviction in July last year, he remained a councillor on both local authorities.
But he said today that he and his wife Sharon Hollinshead had decided to quit the party.
He will remain an independent councillor and stand in the May elections.
Meanwhile, his wife has said she will not stand in the elections, deciding to spend more time with family and due to business commitments.
Councillor Hollinshead, who represents Stafford North on the county council and Littleworth ward on the borough, said his decision to quit Labour had nothing to do with his conviction.
He said: "I want to make it crystal clear that I am not stepping down because of the court case. We were never investigated by the police or the council.
"We volunteered to pay back all the money immediately when we realised there had been an error and an overpayment."
Councillor Hollinshead, of Yarlet Croft, Stafford, was charged with failure to give prompt notification of a change of circumstances last year.
He paid back the entire overpayment in full and an investigation was launched by the Labour Party in London.
Councillor Hollinshead became a borough councillor in 2011 and county councillor in 2013.
He continued: "One of my reasons for resignation is to show allegiance with the hospital supporters.
"I don't feel that I can fully support County Hospital by staying within the Labour party. We want to disassociate ourselves from those who would work solely for their own vanity and not for the interest of the people of Stafford."