"The president has accepted the resignation of Alvarez and is grateful to Alvarez for his valuable contribution to the government and the country in the energy ministry", Government spokesman Andres Chadwick told reporters.
Chadwick also said Alvarez will be replaced by Deputy Energy Minister Sergio del Campo.
Alvarez had led government negotiations with representatives of the Aysen Social Movement (MSPRA), who have been calling on the government to increase supply of economical fuel to their remote southern region of Chile.
Those meetings failed to reach any agreements and only led to an escalation of demonstrations, with violent clashes between protesters and police.
Alvarez is the fourth energy minister to serve in President Pinera`s administration, and the second to resign due to protests over high fuel prices.
The protests in Aysen, one of the country`s most isolated regions, began in mid-February, with residents demanding increased government subsidies for fuel for both transportation and heating, as well as greater access to basic services and connectivity with other parts of the country.
About 93,000 people live in the region. The strikes and highway blockades lasted several weeks, further isolating the already remote region.