(adds more from pope's letter)
By Philip Pullella and Thomas Escritt
VATICAN CITY, June 10 (Reuters) - Pope Francis on Thursday rejected German Cardinal Reinhard Marx's resignation as archbishop of Munich over the Church's sexual abuse crisis, saying he agreed that it was a worldwide "catastrophe" but that the prelate should stay on.
Marx, one of Roman Catholicism's most influential liberal figures, offered to resign earlier this month, saying he had to share institutional responsibility for sexual abuse by clerics over past decades.
In a letter to Marx written on Thursday and released by the Vatican, Francis said he understood the motivation behind Marx's offer to resign, but would not accept it.
"That is my answer, dear Brother. Continue as you suggest, but as Archbishop of Munich," Francis told Marx in the letter, written in the pope's native Spanish.
A former head of Germany's Catholic bishops conference, Marx is not under any suspicion of having participated in abuse or cover-ups.
The Church is investigating abuse allegations in another German archdiocese, Cologne, after a report in March found hundreds of victims there.
"I agree with you that this is a catastrophe: the sad history of sexual abuse and the way the Church approached it until recently," Francis said.
"Becoming aware of hypocrisy in the way we live our faith is a grace and a first step that we must take. We have to take responsibility for this history, both as individuals and as a community. We cannot remain indifferent in the face of this crime," he said in the letter.
Declaring that "the whole Church is in crisis" over abuse, Francis said it could no longer take a "head-in-sand policy" over the crisis.
"Accepting the crisis, as individuals and as a community is the only fruitful way," he said.
A leading progressive, Marx is a proponent of the "Synodal Path," a movement that aims to give lay Catholics more influence over the running of the Church and in issues including appointment of bishops, sexual morality, priestly celibacy and women's ordination.
Conservatives have attacked the concept, saying it could lead to a schism.
The last few years have seen an accelerating exodus from the Church in Germany, with liberal faithful queuing in Cologne to quit the Church, protesting not only at abuse but also over conservative attitudes toward same-sex relationships.
Germany's Church has an outsized influence globally, in part because of its wealth: taxes paid by members and collected by the government make it the world's richest. (Reporting by Philip Pullella in Rome and Thomas Escrit in Berlin Editing by Peter Graff, Alexandra Hudson)
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