"At the end of the day what made the difference in taking this step was the prejudgement through the media of Hypo Vorarlberg and of myself in recent days," Michael Grahammer, 51, said.
"I remain 100 percent convinced the bank at no time contravened laws or sanctions," he said in a statement, adding that he said he will remain in office until a successor is named.
Hypo Vorarlberg was named in a vast trove of documents leaked Sunday related to a Panama law firm allegedly helping the rich, famous and infamous hide assets offshore to avoid tax, circumvent sanctions or launder money.
Austria's financial market authority (FMA) on Wednesday began looking over the bank's accounts, and those of fellow Austrian lender Raiffeisen Bank International (FBI), following the allegations.
Hypo Vorarlberg, majority owned by the state of Vorarlberg, was already the subject of an FMA probe in 2012 related to a firm registered in the Virgin Islands to Gennady Timchenko, a Russian oligarch subject to US sanctions.
The FMA alerted authorities to possible money-laundering but Austrian prosecutors dropped an enquiry in 2013 because of a lack of evidence. Grahammer said on Wednesday that the bank no longer had business dealings with Timchenko.