The Vatican released a statement following the New York Times report on Thursday insisting that the Pope did take action over the US priest.
'Lack of evidence'
The archbishop of Milwaukee says that in 1996, he wrote to a Vatican department then headed by Ratzinger. But no action was taken against the priest, Reverend Lawrence Murphy, who has since died.
The Vatican has said it did not defrock the priest because of his poor health and because there was no evidence of more recent allegations against him.
But Federico Lombardi, the Vatican spokesman, said in the statement on Thursday that in the late 1990s the Congregation for the Doctrine of the Faith - led from 1981 to 2005 by Ratzinger - did in fact take some action by "restricting Father Murphy's public ministry and requiring that Father Murphy accept full responsibility for the gravity of his acts".
"During the mid-1970s, some of Father Murphy's victims reported his abuse to civil authorities ... The Congregation for the Doctrine of Faith was not informed of the matter until some 20 years later," Lombardi added.
The Wisconsin case is one of thousands of cases forwarded by bishops to the Congregation for the Doctrine of the Faith, the US newspaper reported.
Murphy worked at a renowned school for deaf children from 1950 to 1974.
In 1996, the New York Times report said Ratzinger failed to respond to two letters about the case from Rembert Weakland, Milwaukee's then archbishop.
After eight months, the second-in-command at the doctrinal office, Cardinal Tarcisio Bertone, now the Vatican's secretary of state, instructed the Wisconsin bishops to begin a secret canonical trial that could lead to Father Murphy's dismissal.
But Bertone halted the process after Murphy personally wrote to Ratzinger protesting that he should not be put on trial because he had already repented, was in poor health and that the case was beyond the church’s own statute of limitations.
"I simply want to live out the time that I have left in the dignity of my priesthood," Murphy wrote near the end of his life to Ratzinger. "I ask your kind assistance in this matter."
The files contained no response from Cardinal Ratzinger.
Three successive archbishops in Wisconsin were told that Murphy was sexually abusing children, the documents showed, but never reported it to criminal or civil authorities.
The pope apologisedon Saturday for decades of abuse in Ireland, but took no action against bishops blamed for cover-ups, which was met with disdain from numerous victims' rights groups.
|Victims of abuse within the church say the Pope's apology does not go far enough
Only 20 per cent of the 3,000 accused priests, whose cases went to the church's doctrinal office between 2001 and 2010, were given full church trials, and only some of those were defrocked, the New York Times reported.
Sixty per cent of those cases faced other "administrative and disciplinary provisions," such as being prohibited from celebrating mass, the newspaper said.
As the US abuse scandal has intensified in recent weeks, Pope Benedict XVI chose not to say anything on Wednesday during his weekly public audience, an occasion when he offers greetings and messages in nine languages.
More than 300 former students in German Catholic schools and choirs have come forward since January with abuse claims. The country's government announced on Wednesday it will form an expert 40-member committee to investigate.
The allegations have come almost daily, including on Wednesday, when the Munich archdiocese confirmed that another person claimed to have been molested as a youth in 1998 by a priest who was previously convicted of abuse.
On Wednesday, Benedict XVI accepted the resignation of Bishop John Magee - an aide to three popes before assignment in Ireland - who has been accused of endangering children by failing to follow the Irish church's own rules on reporting suspected paedophile priests to police.