The 29-year-old, who became the first Mongolian to earn the highest ranking in Japan's most revered sport in 2003 and only the third non-Japanese, apologized in a statement broadcast on television.
"I am taking responsibility for having caused so much trouble," he said. "I have caused a lot of trouble for so many people. I decided to step down to bring this to a closure.
"I have no regrets about sumo. There was a big difference about what was reported in the media about the incident and what actually happened."
Asashoryu, real name Dagvadorj Dolgorsuren, is the third most successful wrestler in sumo's 2,000-year history but also one of the most controversial.
He won his 25th Emperor's Cup title last month but during that tournament he allegedly attacked a man in the early hours of January 16 after a night of drinking, leaving him with a broken nose and other facial injuries according to Japanese media reports.
In 2007 he became the first grand champion, or Yokozuna, to be suspended after pulling out of a tournament due to a cited injury and then being filmed playing in a charity soccer match.
Asashoryu, who divorced from his wife last year, was also the first Yokozuna to be disqualified from a bout after he pulled the top knot of an opponent in 2003.
Police have yet to indicate whether they will take action over the latest incident, which initially saw one of Asashoryu's managers say he had been the victim before an unnamed nightclub worker came forward.
Japan Today's Web site reported that the two parties had reached a settlement and made a report to the police on Tuesday.
The Japan Sumo Association met on Monday to investigate the incident.
''He felt compelled to resign for misconduct which was inexcusable, and the board accepted it," its chairman Musashigawa said in a statement.
"I want to apologize to all of the fans and to the person injured in the incident. We will work together to make sure there is no recurrence of this.''
Sumo wrestlers are seen as almost God-like figures in Japan, but the sport's image has been hit recently.
In 2008, Russian wrestler Wakanoho was arrested for possessing the illegal drug marijuana and three others were taken away by police over allegations they beat a 17-year-old trainee to death.