Shares of Tel Aviv-listed Bezeq fell 2 percent on the news.

Bezeq last month named Yakov Paz as interim chief executive for at least a month while the investigation proceeds.

Handler was arrested last month in connection with an investigation into allegations that included fraud, bribery and securities offences. She was released from police custody but a court ordered her to stay away from Bezeq for 30 days.

"After completing five years on the job and ahead of a change in ownership, and in light of the investigations and circumstances, I have decided to step down," Handler said in a statement. "It is the right thing to do for me personally and for Bezeq."

Along with Handler, Bezeq's controlling shareholder and former chairman Shaul Elovitch and a number of other officials connected to Bezeq were arrested. They all deny any wrongdoing.

Elovitch, a family friend of Prime Minister Benjamin Netanyahu, controls Bezeq through the heavily indebted Eurocom holding group, which is expected to be sold.

Israeli police questioned Prime Minister Benjamin Netanyahu and his wife Sara this month regarding Bezeq, Israel Radio reported.

Netanyahu has denied any wrongdoing.

(Reporting by Tova Cohen; editing by Steven Scheer and Jason Neely)