Franz-Peter Terbartz van Elst, nicknamed the "bling bishop" by the international media, had been under fire for his luxury lifestyle and was indefinitely relieved of his clerical duties by Francis last year.
The Roman Catholic bishop had faced outrage over an ostentatious building project at his official residence, which included a museum, conference halls, a chapel and private apartments, in the ancient town of Limburg in central Hesse state.
The project was initially valued at €5.5 million but the cost ballooned to €31 million, including a €783,000 garden and a €15,000 bathtub - using the revenue from a religious tax in Germany.
He had also come under fire for lying under oath about flying first class to visit slum dwellers in India.
Tebartz-van Elst, 53, had told a journalist with the Hamburg-based news weekly Der Spiegel that "we flew business class", but then in sworn testimony denied having said those words.
However, the reporter had videotaped him making the comment and the embattled bishop settled the court case with a €20,000 payment in November.
The scandal sparked calls for greater transparency in Catholic Church finances, a reform aim of the new pope who has called for a "poor Church for the poor".
The Vatican said Tebartz-van Elst would be transferred to another post, without specifying which.