Mollohan's decision comes in an election year when his party is accusing majority Republicans of allowing a "culture of corruption" in Congress.
Mollohan, of West Virginia, will be replaced by Rep. Howard Berman of California, a former ranking Democrat on the panel. Mollohan has denied any wrongdoing.
The only evenly divided panel in the House, the Committee on Standards of Official Conduct has been divided along partisan lines for the past 16 months and unable to launch any major new investigations. If Mollohan had stayed while under his own ethics cloud, the chances for the stalemate to end would have been almost impossible.
The Wall Street Journal reported two weeks ago that Mollohan steered millions of dollars to nonprofit groups in his district — with much of the money going to organizations run by people who contribute to the lawmaker's campaigns.
Also, a conservative group filed a complaint with federal prosecutors this year questioning whether Mollohan correctly reported his assets on financial disclosure forms.
While Mollohan's troubles threaten to become a major campaign problem for Democrats, Pelosi, of California, said in a statement that Mollohan decided on his own to step down and that she accepted his decision.