Pope Francis has suspended indefinitely a German Roman Catholic prelate known as the "luxury bishop" from his diocese for spending $43m (31 million euros) of Church funds on his residence.
"The Holy See deems it appropriate to authorise a period of leave from the diocese for Franz-Peter Tebartz-van Elst," the Vatican said in a statement on Wednesday.
But the pontiff, who has been stressing austerity, stopped short of dismissing him outright, a step which many German Catholics and the media had called for.
In a highly unusual move, Bishop Franz-Peter Tebartz-van Elst of Limburg was ordered to leave his diocese while an investigation and audit into cost over-runs is held, the Vatican statement said.
The bishop, who met the pope on Monday, "was currently not in a position to carry out his episcopal ministry".
The statement said he should stay outside his diocese "for a period," and that it would be administered in his absence by a vicar-general.
It did not specify how long the bishop would have to stay away but added that this would depend on an analysis of the finances of his Limburg diocese and the responsibilities for its high costs.
The issue has proven a major embarrassment for the pope, who has called for a more austere Church that sides with the poor.
He has told bishops not to live like princes, and has also promised to clean up the murky finances of the Vatican bank.
Carelessness or misjudgment
The German media has dubbed Tebartz-van Elst "the luxury bishop" after an audit of his spending, ordered after a Vatican monitor visited Limburg last month, revealed the residence cost at least six times more than planned.
The Central Committee of German Catholics, which brings together all the Catholic lay associations in the country, said it was satisfied with the decision to suspend the bishop.
"Pope Francis' decision offers a chance at a new beginning in the diocese of Limburg where the situation has become heavy in recent weeks both for believers there and for the Church in Germany as a whole," its president Alois Glueck said.
He has apologised for any "carelessness or misjudgment on my part", but denies wrongdoing.
The bishop flew to Rome last week with low-cost airline Ryanair to explain himself to Francis - following accusations he took an expensive ticket on a trip to India and squandered money.
German media, citing official documents, said the residence had been fitted with a free-standing bath that cost 15,000 euros, a conference table that cost 25,000 euros and a private chapel for 2.9 million euros.
The "luxury bishop" story has deeply embarrassed a Church enjoying an upswing in popularity thanks to Pope Francis's mass appeal and following years of criticism for hiding sexual abuse cases among clergy.
Tebartz-van Elst, 53, is 22 years away from official retirement age in the Church and his saga represents an extraordinary management quandary for the Vatican.
Even if he eventually steps down from the diocese of Limburg, he would retain the title and rank of bishop, meaning the Vatican would have to find another post for him somewhere.
The scandal has also put pressure on German bishops for more financial transparency in the entire Church in their country, forcing them to scrap centuries of secrecy over the reporting of the value of their private endowments.
Germany's church tax, collected by the state and handed over to the churches, raised 5.2 billion euros for the Catholics and 4.6 billion euros for Protestants in 2012.
According to some media reports in Germany, the Limburg scandal has prompted more Germans to decide to formally leave the Church.