Rauf, who has been on the ICC's Elite Panel since 2006, was due to join seven other umpires in officiating at the tournament, which will be held at Edgbaston, Cardiff and the Oval from June 6.
But following the reports in the media, the ICC has opted to stand him down.
ICC chief executive David Richardson said: "In the wake of reports that the Mumbai Police are conducting an investigation into Asad Rauf's activities, we feel that it is in Asad's best interests as well as those of the sport and the event itself, that he is withdrawn from participating in the ICC Champions Trophy."
An official statement on the subject read: "The International Cricket Council (ICC) today announced that it has withdrawn elite panel umpire Asad Rauf from the ICC Champions Trophy 2013 that will be staged in England and Wales from 6-23 June.
"The decision has been made after media reports on Wednesday indicated that the umpire was under investigation by Mumbai Police."
The remaining umpires at the Champions Trophy are Billy Bowden, Aleem Dar, Steve Davis, Ian Gould, Daryl Harper, Tony Hill and Simon Taufel. No replacement for Rauf has yet been named.
- Asad Rauf
- ICC Champions Trophy
- Mumbai Police