VATICAN CITY (Reuters) - The cardinal widely blamed for failing to prevent a series of ethical and financial scandals during the reign of former Pope Benedict has stepped down, ending an era fraught with embarrassments.

Cardinal Tarcisio Bertone, 78, left his post Tuesday as secretary of state, the number two in the Vatican hierarchy, and handed over the role of "deputy pope" to Archbishop Pietro Parolin, a 58-year-old career diplomat.

Bertone's departure is the most visible break with the hierarchy left by Benedict and comes as Pope Francis prepares to overhaul the notoriously secretive Vatican administration and its scandal-hit bank.

Parolin, a former Vatican nuncio (ambassador) to Venezuela, is known for a frugal lifestyle in tune with the pope's own preferences.

He was not present at Tuesday's handover ceremony, after undergoing surgery while visiting his family in northern Italy.

In his address at the handover, Francis made several references to the difficulties that marked Bertone's tenure as secretary of state, speaking of a "thorny" period.

Bertone was one of the most controversial secretaries in modern Vatican history. He presided over a period beset by scandals and intrigue and came in for heavy criticism and accusations of mismanagement.

But Benedict, who in February became the first pope in 600 years to resign, stood by him and dismissed suggestions by other Church leaders that Bertone should be sacked.

Although he has no power to rule on doctrinal issues, the secretary of state sits in when the pope is ill. He sets the tone for the Vatican's central administration, known as the Curia, and is involved in everything from finances and the appointment of bishops to diplomatic relations with more than 180 countries

Bertone, who was secretary of state for nearly all of Benedict's eight-year pontificate, was blamed for not keeping a close enough watch on the Curia, some of whose members have been accused of corruption and cronyism.

One of the most damaging scandals to hit the Vatican under Bertone was "Vatileaks", when Benedict's butler stole documents alleging corruption from the pope's desk and leaked them to the media.

That coincided with tumult at the Vatican bank, which Italian magistrates are investigating on suspicion of money laundering.

The former president of the bank, Ettore Gotti Tedeschi, was close to Bertone. The board of the bank, officially known as the Institute for Works of Religion (IOR), ousted Gotti Tedeschi last year, saying he was incompetent. He says he was pushed out because he wanted the bank to be more transparent.

Bertone was also blamed for not predicting the fallout from Benedict's decision to rehabilitate a traditionalist bishop who denied the full extent of the Holocaust.

He faced resistance by his staff in the Curia because despite having no diplomatic experience he was put in charge of the Vatican's diplomatic corps.

Francis has said the Curia should be less inward looking and "Vatican-centric".

(Editing by Robin Pomeroy)