"The Archbishop is deeply disappointed by allegations of immorality and possible criminality involving humanitarian workers linked to the charity," said a statement from his office in South Africa.
"He is also saddened by the impact of the allegations on the many thousands of good people who have supported Oxfam's righteous work."
The statement said that Tutu, 86, was retiring as an Oxfam global ambassador as he withdraws from many of his public commitments.
Senegalese singer Baaba Maal and British actress Minnie Driver have also quit as Oxfam ambassadors after the scandal erupted early this month.
The charity has admitted to a lack of transparency over an internal investigation about the use of prostitutes by staff in Haiti, who were there to assist the country's recovery after a 2010 earthquake.
The investigation led to the dismissal of four employees and three others being allowed to resign.
Tutu became a globally-celebrated moral leader during his role in opposing white-minority apartheid rule in South Africa. He won the Nobel Peace Prize in 1984.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)