Walking away: Malcolm Fraser in March.
The Financial Review newspaper says Mr Fraser quit in December, shortly after Tony Abbott replaced Malcolm Turnbull as Liberal leader, because he believed the party was becoming too conservative.
Mr Fraser has previously criticised the party for becoming one of "fear and reaction" and says it is now unrecognisable as the party he joined more than 50 years ago. The former prime minister has also been a vocal critic of the Coalition's border protection policies.
Mr Pyne has told NewsRadio that Mr Fraser's resignation will not have an "enormous impact" on the Liberal Party, and he has defended the direction it has taken under Mr Abbott.
"He's entitled to his view, but I think he's wrong," Mr Pyne said.
"The Liberal Party is as much a party of both liberal and conservative traditions, as it has ever been. It contains in it a number of very prominent 'small l' liberals such as Malcolm Turnbull and George Brandis and others, and they are in senior roles."
Opposition finance spokesman Andrew Robb said Mr Fraser's decision was "his call".
"Malcolm, for whatever reason, has been uncomfortable with lots of our positions for 20 years, 25 years," he said.
"I don't know what's going through his head. We've become used to Malcolm disagreeing with our positions on many issues for nearly a quarter of a century."
This morning Mr Abbott paid tribute to Mr Fraser.
"He obviously has a right to make his judgements about where he stands," the Opposition Leader told Macquarie Radio.
'Troubled'
Liberal backbencher Petro Georgiou was a senior adviser under Mr Fraser when he was prime minister.
He has told ABC's AM program that Mr Fraser left because the party is different from the party he joined.
"I think Malcolm's had a classical Menzies-ian view of the party and has been troubled by where he's seen the party going over recent years," he said.
"I think [his resignation] should be viewed with a great deal of sadness. It should be viewed as the action of a man who takes his convictions very seriously."
When asked if anyone had tried to convince Mr Fraser to stay Mr Georgiou replied: "That's something you'd have to ask Malcolm."
Mr Georgiou said he was deeply saddened by Mr Fraser's resignation but said others would have to form their own view as to whether it is a blow to the Liberal Party and Tony Abbott.
Opposition resources spokesman Ian Macfarlane says it is not surprising that Mr Fraser might have changed his views.
"My mother once wore an "It's Time" t-shirt and I can assure you she is not a Labor voter these days," he said, referring to the slogan for Gough Whitlam's 1972 election campaign.
"I mean, everyone changes their beliefs and as time goes on reflects their beliefs."
Final straw
Mr Fraser's biographer Margaret Simons told ABC2 News Breakfast she knew he had quit the party earlier this year.
Ms Simons said Mr Fraser considered leaving during the Tampa crisis of 2001.
"I think it was really various straws which broke the camel's back," she said.
"The things that finally brought him to this decision were partly that people such as Petro Georgiou, who he felt very loyal to, were leaving ... and also his disgust at the way Malcolm Turnbull was dealt with."
But Ms Simons says Mr Fraser's decision should not be seen as a personal attack on Mr Abbott.
"It's about policy," she said.
The ABC has tried to contact Mr Fraser for comment.
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COMMENT: It's only taken him 50 years to see the light!
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