Rabbi Yona Metzger's attorneys informed the state ministers of Justice and Religious Services that he would step down from his posts of rabbinical high-court judge and president of the Chief Rabbinate council.
He is not, however, stepping down as Ashkenazi chief rabbi, a post he has held for 10 years and which is coming to an end in several weeks.
Israel has two chief rabbis: one Ashkenazi, the other Sephardic. Ashkenazi Jews are those with ancestry in central or Eastern Europe; Sephardic Jews are of Spanish, Portuguese or North African descent.
Police suspect the senior official of bribe, fraud and money laundering. Among other things, Metzger is suspected of pocketing funds he raised for non-governmental organizations. The months-long undercover investigation became public as the police fraud unit raided his home and office Thursday.
After being questioned under warning by the police, the rabbi was released to house arrest for 5 days and is barred from leaving the country. Three more suspects, including the rabbi's driver and personal assistant, were also arrested. Police suspect they covered the money trail and laundered the money.
Metzger denies the allegations. But according to media reports, he said that suspending himself was the right thing to do for the moment.
Justice Minister Tzipi Livni accepted his notice and called it "proper" and "important to maintain the institution of religious judges."
In 2005, Metzger was investigated on suspicion of receiving perks worth thousands of dollars from a Jerusalem hotel that allegedly hosted him and his family for the holidays. He was not indicted.
The latest affair comes as rabbis and lawmakers are campaigning for a say in choosing the country's next chief rabbis, Ashkenazi and Sephardic, choices that are as political as they are religious.
The jockeying can be heated, as different streams of Jewish orthodoxy fight for the positions that control key powers.
Rabbi Ovadia Yossef, a sharp-tongued spiritual leader for many of the country's Sephardic Jews, criticized candidate Rabbi David Stav, calling the moderate rabbi "wicked" and "dangerous to Judaism." The verbal assault turned physical when Stav was harassed at a wedding the day after.
U.S. Jews, including the American Jewish Committee, the Anti-Defamation League and the Rabbinical Council of America condemned the violence and urged that "civility" be maintained during the campaign.