Fr Peter Miqueli is alleged to have used the money on a male prostitute, illegal drugs, property and holidays.
He denies the accusations against him.
He has also said he has fully complied with all investigations taking place since the very beginning.
His resignation comes after parishioners filed a law suit against him over the allegations.
Court papers they submitted said: "This lawsuit seeks to finally put an end to this truly sinful conduct so that St. Frances de Chantal parish can regain the strength, spirituality and faith it once had before Father Miqueli arrived."
They also claim Fr Miqueli paid up to $ 1,000 a time to have sex, and paid $264,000 for a house in New Jersey.
Parishioners also claim the Archdiocese has known about Mr Miqueli's conduct but failed to act.
Fr Peter said in a letter to churchgoers at St Frances de Chantal in New York (pictured above), which he led until recently, that he decided to step down: "while this unfortunate and regrettable situation is investigated," and that he "felt that my continued presence here would be a distraction to you, particularly during this season of Advent and Christmas."
He also said he has complied "with the investigations that have been underway to get to the bottom of the allegations that have been brought against me, and I intend to continue in any way possible to resolve this matter."
The Archdiocese of New York said that: "... from the beginning, taken these allegations seriously, and has been investigating them, including conducting a forensic audit of the parish, which is still ongoing.
"To date we have found nothing to substantiate the allegations that have been raised, and, in fact, with regard to the parish finances, we know that the allegation that Fr Miqueli stole $1 million from each parish, as was alleged by the plaintiffs' attorney, is completely false.
"We did find that Father Miqueli had deficient management and administrative practices, and have put forward several directives to remedy those deficiencies.
"We have asked the people who are making these charges to please provide us with documentation, but they have thus far failed to do so."
