London Mayor Boris Johnson is launching an independent inquiry into allegations of financial misconduct against deputy mayor Ray Lewis.
The allegations against Mr Lewis, who has responsibility for youth, refer to when he worked as a vicar in east London a decade ago.
It emerged that he has been barred by the Church of England from preaching after the claims.
Mr Lewis said the allegations are rubbish and groundless.
BBC London's Political Editor Tim Donovan said police investigated complaints about financial irregularities in the late nineties but no criminal action was pursued.
In one case, the allegation centred on a sum of more than £25,000 entrusted to Mr Lewis by a female congregant in the Parish of St Matthew, West Ham in the Diocese of Chelmsford.
Mr Lewis was placed on the Church of England's Lambeth and Bishopthorpe Register - the so-called Lambeth List - in 1999.
People on the list are prevented from public ministry and preaching.
London deputy Mayor speaks to deny misconduct allegation
"Between 1999 and 2005, Ray was placed under the formal disciplinary structures of the Church of England, and his ministry was restricted," said the Rt Revd John Gladwin, Bishop of Chelmsford.
"This was because a misdemeanour of such seriousness had been committed that in the opinion of the Archbishop, the person concerned should not exercise his ministry for the time being."
At a press conference at City Hall, he claimed he was not aware he had been struck-off and that he was still a priest in the Church of England.
Mr Lewis said: "I'm not a saint. I speak my mind and sometimes I rub people up the wrong way. But I am not the person painted by these allegations.
"I have never harassed anyone. I have never defrauded anyone.
"I have never knowingly done anything that would be inconsistent with my position as a Justice of the Peace, as the founder and director of a charity, or as someone given the awesome responsibility of caring for young children."
Mr Lewis left the church in 1997 to take up a post abroad.
When he returned to England in 1999, he was unable to resume a career in the church and joined the prison service.
Mr Lewis is the founder of the Eastside Young Leaders Academy in Newham in east London.
Based on a regime of strict discipline, it has been praised for its after-school work with black teenagers who have been in trouble or not doing well in mainstream school.
The Conservative Party in particular has heralded Mr Lewis' methods as a model for the future, and a key way to help confront the recent spate of knife and gun murders in London.
On Wednesday, Mr Johnson praised his work and said he hoped to set up a 100 similar academies in London.
Mr Johnson said: "I believe that my deputy mayor Ray Lewis is being made to suffer now because he has had the guts to serve in this administration and because he has had the courage to speak out against a stifling orthodoxy that has failed too many of our children.
"These allegations did not stop him from becoming a JP. They did not stop him from becoming an outstanding and respected prison governor.
"They did not stop him founding a school that has done untold good for east London children and they should not stop him from serving as my deputy mayor."
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