The resignation is effective Tuesday. Marcelo Co had represented the city's 4th District since November 2010.
"The Council respects Mr. Co's decision, and we will work collectively to assist residents and businesses in that area of the City during this interim period," said Moreno Valley Mayor Tom Owings in a statement.
Co was arrested Monday on suspicion of fraud, grand theft and two other felonies, according to the Riverside County District Attorney's Office.
Co is accused of receiving $15,000 from the In-Home Supportive Services program for his mother, but his mother was living in Asia at the time while he was in the U.S. Co is free after posting bail.
The former councilman was already under investigation in a separate corruption probe. A petition drive to recall Co began Monday in the wake of a political influence peddling probe.
The Associated Press contributed to this report.