Ney has been identified as "Representative No. 1" in federal documents detailing the exchange of illegal gifts and favors involving former GOP lobbyist Jack Abramoff and lawmakers, their aides and other Washington officials.
Ney, who has denied any wrongdoing, had said he would not resign, even if indicted. But in a statement released by his campaign Monday, he said he decided to withdraw from the race to maintain his seat, although he will serve out his term representing Ohio's 18th District.
"Ultimately, this decision came down to my family. I must think of them first, and I can no longer put them through this ordeal," the six-term congressman said in the statement.
Ohio state Republican Sen. Joy Padgett told the Associated Press that Ney called her Saturday and asked her to run in his place, which she planned to do.
"It's a very sad time," she said.
She added that Ney told her, "that there's only so much he can take. He said, 'I have to do this.'"
Padgett has been a state senator since 2004 and served in the Ohio House of Representatives from 1993 to 1999.
Ney faced a tough challenge in the Nov. 7 midterm elections from Democrat Zack Space, a law director who made the Justice Department investigation the focus of his campaign, reported the AP.
Neither Space nor Ney was immediately available for comment, according to media reports.
Ney is under scrutiny for a golf trip to Scotland with Abramoff and other activities.
Ney's former chief of staff Neil Volz pleaded guilty in May and, like Abramoff, agreed to cooperate in the federal probe.