Days after Fairfax Media revealed that the Labor MP had claimed almost $40,000 on a "second residence" allowance to live in Queenscliff while representing a western suburbs electorate, Mr Languiller announced he would step down as speaker and return to the backbench.

It is understood that Daniel Andrews' parliamentary secretary Colin Brooks is the Premier's preferred choice to replace Mr Languiller as speaker, and that the government is now considering tightening the entitlements system as a result of the latest scandal.

"During the last 48 hours I have had the opportunity to talk with family, colleagues and friends," Mr Languiller said in a statement issued on Saturday.

"As I have already stated in the press and in the Parliament I accept that my actions do not meet the very high standards that the community expects of its elected representatives.

"No matter what difficult personal circumstances I may have been going through, I have to recognise it as an error of judgement and I accept that I should pay the price for that error of judgement.

"I understand that offering to repay the allowance is not enough. For this reason today I contacted the Premier to inform him that I would be resigning as the speaker of the Parliament.

"I regret that this issue, if not addressed, could damage the position of speaker and the Labor Party that I love."

Mr Languiller said that by returning to the backbench, he hoped he could "rebuild trust by serving my electorate of Tarneit and my community".

However, his decision to quit comes only days before he was about to be the subject of an investigation by parliament's audit committee that would have examined the critical question of whether he genuinely resided in Queenscliff.

In the past 24 hours it is understood that there were considerable doubts about whether Mr Languiller was able to provide sufficient evidence to prove he was entitled to claim the $40,000 - a perk that the government is now considering tightening to ensure it is used solely by country MPs who work at Spring Street, not for city and suburban MPs to live elsewhere.

On Friday, deputy speaker, Labor MP Don Nardella, was also caught claiming the same allowance to live in the beachside town of Ocean Grove rather than his Melton electorate in the outer suburbs.

It is estimated that Mr Nardella claimed more than $100,000 from the second residence allowance - money that he did say he would not pay back, telling Fairfax Media on Friday: "It's my home, I'm claiming it."

He did not respond to calls on Saturday, however Labor branch members in his seat told Fairfax Media they were surprised to learn about his second residence because "he's always made out like he lived here".

Caucus will now determine who becomes the new speaker, while it is expected that the audit committee, led by parliamentary president Bruce Atkinson, will look at the latest revelations involving the deputy speaker - and continue to look at the claims made by Mr Languiller.

By late Saturday afternoon, Premier Daniel Andrews did not respond to a series of questions from Fairfax Media about whether he condoned the actions of Mr Nardella and Mr Languiller, or whether he had any plans to tighten MPs perks to ensure they are no longer misused.

However, when asked on Friday if Mr Languiller had his support, Mr Andrews said: "Yes, he has indicated he will repay that money and the audit committee will be looking into these matters in detail and I think we should all wait and see the findings of that."

"It would seem that he was entitled to claim the allowance that he claimed, but he has made it very clear he doesn't think that meets community expectations, and it is on that basis he is going to repay the money," he said.

Earlier, opposition leader Matthew Guy had called for both Labor MPs to step down over the "epic" rorting of entitlements.

"Andrews Government MPs have been rorting the system to epic proportions," he said. "Daniel Andrews is presiding over a Labor Party full of unapologetic rorters. It's time these MPs paid back this money and resigned. If they don't go, it's up to Daniel Andrews to sack them."

With Richard Willingham