Bill Richardson has withdrawn his nomination to be commerce secretary.
Richardson, who will remain governor of New Mexico, is facing a federal grand jury investigation into whether he exchanged government contracts for contributions to three Richardson political committees.
Richardson denies any wrongdoing but the investigation won't be finished before he has to go to a Senate confirmation hearing.
"Let me say unequivocally that I and my administration have acted properly in all matters and that this investigation will bear out that fact," Richardson said in a statement. "But I have concluded that the ongoing investigation also would have forced an untenable delay in the confirmation process."
Obama said he was accepting Richardson's request to withdraw with "deep regret."
It is a measure of his willingness to put the nation first that he has removed himself as a candidate for the Cabinet in order to avoid any delay in filling this important economic post at this critical time," the president-elect said in a statement. "I look forward to his future service to our country and in my administration."
The Associated Press reported last month that a grand jury is investigating whether the California firm CDR Financial Products paid to push through a contract with the state of New Mexico.
State documents show CDR was paid a total of $1.48 million in 2004 and 2005 for its work on a transportation program.
CDR and its CEO, David Rubin, have contributed at least $110,000 to three political committees formed by Richardson, according to an AP review of campaign finance records.
The largest donation, $75,000, was made by CDR in June 2004 -- a couple of months after the transportation financing arrangement won state approval -- to a political committee that Richardson established before the Democratic National Convention that year.
Democratic strategist Mary Anne Marsh told FOX News that with the cloud lingering over the Obama transition because of Illinois Gov. Rod Blagojevich's alleged attempts to sell Obama's vacated Senate seat, the Richardson nomination would have been another unwanted distraction.
Richardson "was going to have a very difficult time getting through this nomination," Marsh said. "People really haven't looked at the Richardson situation and the more they looked at it, the more they realized" confirmation was going to be a problem.
Richardson, who ran unsuccessfully for the Democratic presidential nomination last year and later endorsed Obama, is currently in his second term as governor of New Mexico. He served seven terms as a U.S. representative and was energy secretary and U.S. ambassador to the U.N. during the Clinton administration.