A woman reads a newspape carrying a picture of PEGIDA leader Lutz Bachmann, allegedly posing as Hitler in Berlin. PHOTO: AFP
"Yes, I am stepping down from the board," Lutz Bachmann, 41, was quoted as telling Bild daily in an online report.
Addressing his followers on Facebook, he said: "I sincerely apologise to all citizens who felt attacked by my posts."
"They were thoughtless statements that I would not make today. I am sorry that I have damaged the interests of our movement with them and I am acting accordingly."
A photo of Bachmann looking like Nazi leader Adolf Hitler had surfaced on Wednesday, going viral on social media and sparking a storm of protest.
Media reports also said that Bachmann had posted comments on Facebook in the past referring to refugees as "beasts" and "filth".
Dresden's public prosecutor was investigating whether to open a case against him on charges of incitement of hatred.
PEGIDA spokeswoman Kathrin Oertel welcomed Bachmann's resignation, saying that his "Hitler selfie" had been "satire, which is every citizen's right" but that "sweeping insults against strangers" went too far.
She said Bachmann, who founded PEGIDA -- "Patriotic Europeans Against the Islamisation of the Occident" -- in the eastern city of Dresden in October, had posted the picture in September, before he became prominent.
Bachmann took the photo, which shows him with a small black moustache and hair swept into a side-parting, around the time of the publication of a bestselling satirical audiobook about Hitler entitled "Look Who's Back".
The furore it caused torpedoed PEGIDA's recent efforts at a charm offensive with the media to present a more moderate image.
At their first-ever press conference this week, Bachmann and Oertel had distanced themselves from the neo-Nazis who had joined their rallies and said that most of their supporters were citizens fed up with contemporary politics.
About 5,000 right-wing protesters, meanwhile, again started to mass, this time in another eastern city, Leipzig, separated by riot police from thousands of anti-racist counter-demonstrators.
Germany, haunted by its Nazi past, prides itself on its efforts to come to terms with its history and is sensitive to any threat to the international standing it has established since World War II.
Chancellor Angela Merkel has condemned PEGIDA and Vice Chancellor Sigmar Gabriel also spoke out strongly against Bachmann.
"Anyone who in politics disguises themself as Hitler is either a bit of an idiot or a Nazi," he said.
"Everyone should think about whether to walk behind such rabble-rousers."
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Are we supposed to ignore the threat to our free and democratic societies that Islam poses? When Muslims insult us we have a right to insult them back.
Even their extremist leaders have morals to step down. Just compare them to our leaders.
Where is west's freedom of expression? West is confused and nothing else
So posing as Hitler results in an apology because it has hurt the sentiments of others but when the sentiments of 1.6 billion Muslims are hurt then freedom of speech emerges.