David Bitan said today "the situation" is making it difficult for him to serve as chairman, though he will remain a member of parliament.
Police have been questioning Bitan in relation to accusations he promoted the interests of criminals in return for debt relief while he was a municipal politician.
Bitan, who has denied the allegations, has been the driving force behind a legislation drive seen as aiding Netanyahu.
Netanyahu has been questioned in two cases involving possible bribery, fraud and breach of trust. Netanyahu denies any wrongdoing.
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