When parliament returns after the winter break, the Senate will refer Senator Ludlam's case to the Court of Disputed Returns in the High Court.
"I apologise unreservedly for this mistake", he said on Friday.
The deputy leader of an Australian political party has announced he is ending his nine-year career in Parliament because he has discovered he has technically never been a senator.
Scott Ludlam may be forced to pay back $1.6million in wages he received during his time as Greens Senator after it was revealed he "forgot" he held dual New Zealand-Australian citizenship. In order to run for election a candidate must be registered, be on the electoral roll and be a New Zealand citizen.
Mr Ludlam, 47, left New Zealand as a three-year-old.
Ludlam is required to repay his salary for his period in the senate - a sum that will exceed a million dollars.
"I am personally devastated to learn that an avoidable oversight a decade ago compels me to leave my colleagues, supporters and my wonderful team", he said. Nevertheless, the constitution clearly states that anyone who is "a subject or a citizen or entitled to the rights or privileges of a subject or a citizen of a foreign power" is ineligible to hold public office in Australia.
He has vowed to fight any such move, saying that his current assets "amount to a fast computer and a nice pair of shoes".More news: Jazz sign Ekpe Udoh, release Boris Diaw
"I was naturalised [to Australia] in my mid-teens".
"I am hoping common sense prevails".
Fellow parliamentarians paid tribute to him on Twitter, including Greens leader Richard Di Natale and Ludlam's co-deputy leader, Larrisa Waters. I expected the human headline may not have done it and Mr Ludlam would have done it, but it was the other way around.
The ABC's election analyst Antony Green said he thought it was unlikely Mr Ludlam's salary would be clawed back.
University student Jordon Steele-John has been touted the frontrunner to take the vacant seat. He is the third member of the 2016 Senate to have had their election ruled ineligible, after Bob Day and Rod Culleton were barred previous year.
"I did this as a citizen, not as a lawyer, with a keen interest in the Constitution", Dr Cameron told the newspaper.
In October, Mr Day resigned as a Family First senator for South Australia after it emerged the former company director's building company had gone bust, making him a bankrupt and therefore ineligible to be in parliament.
In January, the High Court ruled that former One Nation senator for Western Australia Rod Culleton's election to parliament was invalid because he had been charged with stealing a $7.50 truck key.