26 March 2014
Last updated at 08:24 ET
The Vatican made the announcement in a statement on Wednesday.
Bishop of Limburg Franz-Peter Tebartz-van Elst has been accused of spending more than 31m euros (£26m) on renovating his official residence.
The cleric, dubbed the "bishop of bling" by the media, offered to resign when the scandal broke last October.
In response, Pope Francis temporarily suspended Bishop Tebartz-van Elst and instructed a Church commission to investigate the matter.
Pope Francis has repeatedly expressed his disapproval of senior clerics whose lifestyles seem too lavish.
'Docility' call
German 'bishop of bling' resigns over spending scandal
The Vatican did not elaborate further on the bishop's future
Pope Francis has formally accepted the resignation of a senior German Church leader suspended over his alleged lavish spending.
Bishop of Limburg Franz-Peter Tebartz-van Elst has been accused of spending more than 31m euros (£26m) on renovating his official residence.
The cleric, dubbed the "bishop of bling" by the media, offered to resign when the scandal broke last October.
In response, Pope Francis temporarily suspended Bishop Tebartz-van Elst and instructed a Church commission to investigate the matter.
Pope Francis has repeatedly expressed his disapproval of senior clerics whose lifestyles seem too lavish.
'Docility' call
On Wednesday, the Vatican said the inquiry found that the senior cleric could no longer exercise his ministry.
The Church called on the diocese of Limburg to accept the decision "with docility" and to work toward restoring a "climate of charity and reconciliation".
Auxiliary Bishop Manfred Grothe has been appointed to run the Limburg diocese.
Bishop Tebartz-van Elst and his luxury lifestyle have become infamous in Germany, where many people pay a Church tax to the state. The tax raised 5.2bn euros for Catholics and 4.6bn euros for Protestants in 2012.
At the heart of the criticism was the refurbishment of the cleric's official residence, originally set to cost 5.5m euros.
German media reported that the quarters were fitted with a 15,000-euro bath, a conference table for 25,000 euros and a private chapel worth 2.9m euros.
The bishop was also under fire for a first-class flight to India to visit the poor.
The story attracted heavy coverage and stoked controversy among Catholics.
It was in Germany that Martin Luther launched the Reformation five centuries ago in response to what he said were excesses and abuses within the Church.
The Church called on the diocese of Limburg to accept the decision "with docility" and to work toward restoring a "climate of charity and reconciliation".
The bishop's official residence in Limburg (L) has been described as luxurious
Germans made clear what they thought of the cleric during a carnival parade in Mainz in early March
The Vatican did not further elaborate on the future of Bishop
Tebartz-van Elst, but said he would get a new position "at the opportune
time".Auxiliary Bishop Manfred Grothe has been appointed to run the Limburg diocese.
Bishop Tebartz-van Elst and his luxury lifestyle have become infamous in Germany, where many people pay a Church tax to the state. The tax raised 5.2bn euros for Catholics and 4.6bn euros for Protestants in 2012.
At the heart of the criticism was the refurbishment of the cleric's official residence, originally set to cost 5.5m euros.
German media reported that the quarters were fitted with a 15,000-euro bath, a conference table for 25,000 euros and a private chapel worth 2.9m euros.
The bishop was also under fire for a first-class flight to India to visit the poor.
The story attracted heavy coverage and stoked controversy among Catholics.
It was in Germany that Martin Luther launched the Reformation five centuries ago in response to what he said were excesses and abuses within the Church.
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