Ian Stafford, 58, was arrested after women in the area called police to report knickers repeatedly disappearing from their homes.
One woman was so peturbed she installed a hidden camera in her bedroom, which recorded a semi-naked man rifling through her drawers and putting on her underwear before performing a sex act.
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Investigations later revealed a collection of knickers, allegedly matching those reported stolen, at the home of the mayor. He was arrested on suspicion of burglary and bailed.
Mr Stafford, who works as a handyman and gardner, has now resigned from his post in Preesall near Fleetwood,Lancs. A fellow councillor has taken over the chain of office.
A spokesman for the town council confirmed that as a result of Mr Stafford's arrest he had stood down. A spokesman for Lancashire Police said an investigation into stolen underwear had taken place in Preesall and a suspect was currently on police bail after being questioned.
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