In the letter made public on Friday, Ratzinger questions whether the defrocking of Reverend Stephen Kiesle, a California priest convicted in 1978 of tying up and molesting two young boys in San Francisco, was in the "the good of the universal church".
After his probation ended in 1981, Kiesle asked to leave the priesthood and the diocese submitted papers to Rome to begin the process of defrocking him.
John Cummins, then a bishop in the US, wrote to the Vatican arguing that Kiesle should be stripped of his priesthood.
"It is my conviction that there would be no scandal if this petition were granted and that as a matter of fact, given the nature of the case, there might be greater scandal to the community if Father Kiesle were allowed to return to the active ministry,'' he wrote.
In a letter sent to the bishop years later, Ratzinger says that Kiesle should be provided with "as much paternal care as possible" while awaiting a final decision.
He urged local church officials to take into account the "good of the universal church" and "detriment that granting the dispensation can provoke within the community of Christ's faithful, particularly considering the young age".
Kiesle was 38 at the time, and remained a priest until 1987. He was convicted of more sex offences against children during the 1990s and now lives as registered sex offender in California.
The Vatican confirmed the letter bore Ratzinger's signature, but refused to comment on its contents.
"The press office doesn't believe it is necessary to respond to every single document taken out of context regarding particular legal situations,'' the Rev. Federico Lombardi said.
The new allegations come on the heels of a series of child-sex scandals involving the Catholic Church.
Last month a story in the New York Times newspaper published internal church documents regarding a paedophile priest in the USA.
The Reverend Lawrence Murphy was accused of abusing up to 200 deaf boys from the 1950s to the 1970s.
Among documents the newspaper posted on its website was a 1996 letter about Murphy to Cardinal Joseph Ratzinger, then the Vatican's senior doctrinal official and now Pope Benedict, showing he had been informed of the case.
Ratzinger's deputy first advised a secret disciplinary trial but dropped the plan in 1998 after Murphy appealed directly to Ratzinger for clemency. The priest died later that year.
The Vatican has reacted defiantly to the suggestion that the Pope had been involved in a cover-up of Murphy's paedophilia, dismissing the allegations as "petty gossip".