"Murderers!" chanted hundreds of protesters gathered outside parliament on Tuesday, with some throwing eggs at Muscat, who has been accused of impeding justice by protecting his closest allies.
After two years of stalled investigations into the murder, the authorities in the Mediterranean country have moved rapidly in recent days, destabilising Muscat's government.
Keith Schembri, who was also Malta's acting tourism minister, submitted his resignation following a meeting of government ministers, Muscat told reporters in Valletta.
Police confirmed on Thursday that Mr Schembri had been released and was no longer of interest to investigators.
The protest coincided with the imminent resignation of Muscat, who said in a statement that the main suspect in the Caruana Galizia assassination investigation, Yorgen Fenech, had threatened to implicate him unless he recommends a pardon for him. And he called for the prime minister to resign.
Schembri, who resigned his post when questioned earlier in the week, has denied any wrongdoing related to the death of Daphne Caruana Galizia, who was killed as the vehicle she was driving near her home blew up.
Opposition politicians and the family of Caruana Galizia have denounced Muscat for allowing the two men to remain in their posts and have asked the prime minister to resign. Fenech is said to have provided evidence against the prime minister's signor chief of staff, Schembri.
"But what is incredible is that the prime minister is still using his position, and even giving speeches in parliament, behaving as though he is the defence lawyer of his chief of staff", Matthew Caruana Galizia, the late journalist's son, told DW on Thursday.
Mr. Fenech was arrested in November 20 as his yacht was trying to leave Maltese waters.
Muscat's spokesman would neither confirm nor deny the report.
According to a person briefed on the investigation, Mr Theuma started to provide further information that would "bring the house down", with substantial details of corruption and the complicity of other senior figures in the murder that shocked Europe. "We call for all hitmen, all middlemen, and all masterminds to be prosecuted to the full extent of the law", said UK Bureau Director Rebecca Vincent. "I fear for my life", he told the reporters.
Fenech, who was arrested last week while trying to leave the island in his yacht, was also freed on bail on Friday.
Cardona declared upon resigning that he had "absolutely no connection with the case", but had chose to step back "in the national interest" after being questioned by police last weekend.
Mr. Schembri has denied all accusations of a role in the journalist's murder. Fresh demonstrations were planned for later Friday.
"I left the final decision with my colleagues, who decided that it's not fitting to grant a pardon", Mr Muscat announced at a press conference, flanked by ministers.
Later that same day, Caruana Galizia's vehicle exploded with her inside.
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