Philip Mudd was scheduled next week to face senators considering his nomination as undersecretary of intelligence and analysis at Homeland Security.
He notified the White House on Friday that he was withdrawing his name because he did not want to be a distraction.
At issue was the extent of Mudd's involvement in the controversial interrogation program while he was a senior official at the CIA during the Bush administration. The interrogation methods have been harshly criticized by Democratic lawmakers and Obama.
"I know that this position will require the full cooperation with Congress and I believe that if I continue to move forward I will become a distraction to the president and his vital agenda," Mudd said in a statement Friday.
On Thursday, Sen. Kit Bond, R-Mo., the top Republican on the Senate Intelligence Committee, said Mudd's ties to the program would be investigated during the confirmation hearing.
As deputy director of the Office of Terrorism Analysis at the CIA, Mudd had direct knowledge of the agency's harsh interrogation program, according to a congressional aide, who was not authorized to disclose the information and spoke on condition of anonymity.
A White House spokesman said that Mudd had Obama's full support of the president but that the president understood Mudd's decision.
"It is with sadness and regret that the president accepted Phil's withdrawal from consideration as Phil once again demonstrated his duty to country above all things," White House spokesman Nick Shapiro said.