Critics claimed the estimated pounds 350,000 donated by Dr Flick was tainted money because his industrialist grandfather, Friedrich, was jailed at Nuremberg.
A statement from the university last night said: "The University of Oxford has accepted with regret a request from Dr Gert-Rudolf Flick that his name be removed from the new University Chair in European Thought which he funded for a five-year period (1995-2000), and that his endowment be returned."
The university vice-chancellor, Dr Peter North, wrote to Dr Flick last night to say that he fully understood why the decision had been taken. "The university will, of course, follow your wishes, but does so with regret and with thanks," he added.
Dr Flick's grandfather built up one of Germany's richest industrial empires, with products ranging from munitions to Mercedes cars. He was an adviser to Himmler and allegedly used 40,000 slave labourers.
He was jailed for seven years at Nuremberg in 1947 and freed after three years in 1950. He died in 1972, aged 89, splitting his fortune between his grandsons and his brother.
Dr Flick tried to calm the furore over Oxford's acceptance of his endowment by going on record to denounce the Nazi regime. A university spokesman said last night that the chair, which is attached to Balliol, would continue to be funded from "contingency money".
Dr Flick's letter thanked the university for its "unwavering support" and said it had been "an honour to be associated with the university and its projects".
Balliol discussed the funding of the chair at its end of term meeting last month and is believed to have decided "not to punish the man for the sins of his grandfather". Professor John Burrow, who has been already appointed the first holder of the post, is planning a series of lectures on notions of race and nationality in the 19th century to explore the roots of ideas including the Holocaust.Reuse content