"Sheriff Babeu has stepped down from his volunteer position with the campaign so he can focus on the allegations against him. We support his decision," Romney spokeswoman Andrea Saul said in a statement.
Pundits are predicting that Mr Babeu's political career as a rising Republican star in a conservative district with a large evangelical Christian and Mormon population is over, though he vowed to continue to run for office.
Despite being by far the best-funded and best-organised candidate who has the backing of the Republican establishment, Mr Romney has failed to energise the party's conservative grass roots and his super-rich CEO personna has failed to resonate with middle America.
The former front-runner's presidential bid is now under threat from Rick Santorum, the Christian conservative who has ignited the party's roots - though not its leadership - with his meteoric rise, fuelled in part by his stance as a strong opponent of gay marriage.