Attorney General Peter Heed (search) has resigned and is being investigated for sexual harassment, the governor's office said Tuesday.

"Both the attorney general and I know there is a way in which you have to conduct your business in the state of New Hampshire," Gov. Craig Benson (search) said. "I do not at all disagree with the attorney general's decision to step down."

Deputy Attorney General Ayotte, who was promoted to the state's top law enforcement post, said the county attorney's office is conducting an independent investigation into allegations of sexual harassment (search) against Heed.

Heed was serving his second term as Cheshire County attorney when Benson nominated him to be attorney general in February 2003

The Republican is a graduate of Dartmouth College (search) who also worked in the criminal division of the attorney general's office from 1975-80. He left the attorney general's job to enter private practice with a Keene law firm.

Ayotte worked for the attorney general's office for five years before being named Benson's legal counsel in January. She returned in March when she was named deputy attorney general.

Early this year, Heed concluded a "volunteer" and friend of Benson took $187,000 in state broker fees improperly when negotiating a state insurance contract. He has sued to try to get the money back from the volunteer, Linda Pepin.

He concluded Pepin violated insurance regulations, but broke no criminal laws in accepting the fees without a broker's license.

Last month, Heed made news when he harshly criticized the No. 2 man in the Catholic church in New Hampshire, accusing him of denying responsibility for his role in the church sexual abuse scandal.

Heed was responding to comments made by the Rev. Francis Christian, who said state prosecutors misrepresented the facts when they announced in 2002 that church leaders had protected sexually abusive priests.

The church and state have disputed who would pay for an audit that was part of the agreement.

"The church has taken the position that the audit we want is too thorough, too comprehensive. It might tell the truth and we don't want that to happen," Heed said sarcastically, at the time.

Heed also found himself in the middle of a heated dispute on how the state should pay for public schools, advising Benson and legislative leaders last month that the state law to distribute education aid next year and several competing plant to replace it probably would not survive a court challenge.