An assembly of the diocese of Limburg decided on Saturday that their bishop Franz-Peter Tebartz-van Elst had "so damaged" the relationship of trust between him and his congregation, that his return "did not seem possible".
Tebartz-van Elst became the subject of severe criticism for spending €31 million on a new headquarters in western Germany with €783,000 going on a garden, €25,000 on a table and €15,000 on a bath tub.
The Vatican suspended the bishop in late October after he flew to Rome on low-cost airline, Ryanair, to explain himself to Pope Francis following allegations he also took an expensive flight to India and squandered money.
Although the Vatican did not say how long the disgraced bishop would have to stay away, German media had reported it would be around three months, after which he would return to his duties.
However, at the meeting on Saturday his fellow bishops spoke of their "shock" at the situation the diocese had found itself in and said a new beginning did not seem possible.
"Committed Catholics found themselves confronted with the need to justify their involvement with the diocese of Limburg, as they were made responsible for decisions, in which they were not involved in any way," said the diocese in a statement released on Sunday.
The diocese said in order to gain back trust and credibility there would need to be transparent information and a careful examination of events surrounding the construction of the bishop's residence and headquarters.
President of the Diocesan Assembly, Ingeborg Schillai, urged believers not to draw back, but to involve themselves further in the diocese and the dissemination of the gospel.
On Monday, meanwhile, Tebartz-van Elst has settled a court case over lying under oath with a €20,000 payment.
The legal headache he faced centred on a tussle with Hamburg-based newsweekly Der Spiegel, which had reported that he flew first class to visit slum dwellers in India.
Tebartz-van Elst, 53, had later told a Spiegel journalist that "we flewbusiness class" but then in sworn testimony denied having said those words.
However, the reporter had videotaped the bishop making the comment.
The Hamburg court said the state treasury had received the €20,000 payment and, with the consent of prosecutors, closed the case.
The bishop has meanwhile stayed out of the public eye since the pope sent him on leave from the diocese on October 23rd.