Hans von Spakovsky, a former Justice Department official who never had Democratic support to win confirmation, withdrew his nomination, saying it was time for the protracted deadlock to end.
Mr. Bush "reluctantly accepted" von Spakovsky's request, the White House said.
Democrats have objected to von Spakovsky's tenure at Justice, where he oversaw voting rights matters. The standoff has held up other Senate confirmations to the six-member FEC, which is without a quorum and has been unable to conduct business.
In a letter to Mr. Bush, von Spakovsky said the long-stalled process has been extremely hard on his family. "And quite frankly, we do not have the financial resources to continue to wait until this matter is resolved," he wrote.
He added: "The agency that is tasked with policing our campaign finance system needs to be operational during a presidential election year. The opposition to my nomination (however unfair) is preventing that from happening."
Senate Democratic leader Harry Reid, D-Nev., welcomed von Spakovsky's withdrawal. Democrats have charged that von Spakovsky tried to suppress voter participation through new restrictions such as voter identification laws and voter roll purges.
"Democrats stood united in their opposition to von Spakovsky because of his long and well-documented history of working to suppress the rights of minorities and the elderly to vote," Reid said. "He was not qualified to hold any position of trust in our government."
Senate Republicans, however, argued that a recent Supreme court ruling upholding a strict Indiana voter identification law vindicated von Spakovsky's stance on the issue.
Senate Republican leader Mitch McConnell of Kentucky blamed Democrats for obstructing what he called "a highly-qualified nominee to the FEC."
"Once again, liberal interest groups did their best to manufacture controversy and, once again, Senate Democrats played along," McConnell said in a statement.
Mr. Bush sent the Senate a new slate of FEC nominees this month, retaining von Spakovsky but withdrawing the nomination of FEC Chairman David Mason.
Mason had clashed in the past with presumed Republican presidential nominee John McCain.
The Senate could vote on the remaining four nominees awaiting confirmation or wait until Mr. Bush nominates a replacement for von Spakovsky. The commission consists of six members - three from each party. It takes four votes on the commission to act, meaning that even with a 3-2 advantage, Democrats would need one Republican to avoid a deadlock.
The FEC has unfinished business before it, including final action on regulations governing candidate air travel as well as new rules on lobbyist fundraisers and joint advertising by national parties and federal candidates.
Also pending is action on McCain's decision to bypass public matching funds during the primary. Mason had informed McCain that he needed commission approval before withdrawing. Without a quorum, the FEC was unable to act. Mason also said McCain needed to explain the terms of a loan he obtained before he won the early primaries.
Richard L. Hasen, a law professor at the Loyola Law School in Los Angeles, said the most important action by the FEC is a "non-controversial and ministerial act" - approving requests for public financing by presidential candidates. McCain is expected to ask for the $84 million available this year for the general election.
"It would be a terrible situation for a candidate wanting to get public financing to not be able to get it," Hasen said.