If they don't want you on the staff they either have to make your post (that's your post - not you)redundant or sack you with good reason: being asked to submit your resignation is simply a means for them to take zero responsibility and demonstrate that leaving the job was your call: DO NOT DO IT.
It looks like what's happening here is that they are eliminating the overheads associated with employing you (and, by further association, the benefits and security you currently enjoy) so that they can casually retain you on the cheap (Note for future reference: freelance rates ought to be approx. an additional one-third to one-half more than your billable [not take home] hourly rate in full-time employment).
Ask what they imagine will happen if you choose not to accept the invitation to resign and, if you don't like the answer, take legal advice.