Father David O'Hearn, of St Michael's parish, Nelson Bay, was stood aside last Wednesday. He is the second priest to be suspended from duty since September.
Parishioners at St Michael's Church were told on the weekend that their priest of four years would "not be involved in his usual parish ministry at this time".
His suspension concerned a matter that required "independent investigation".
The diocese is refusing to specify why Father O'Hearn is under investigation, or how long the investigation will take.
"The diocese follows clear protocols relating to such matters," its vicar-general, Father Tom Brennan, said in a statement to parishioners. " At this stage Father O'Hearn will live privately."
Father Brennan said the matter had been discussed with the Bishop, Michael Malone, who was on pilgrimage.
A separate investigation of a professional conduct matter concerning a Maitland priest, Father Peter Brock, who was stood down in September, remained "current".
Father O'Hearn, who presided over the funeral of the former Port Stephens MP, John Bartlett, in February, was punched in the face by a Catholic primary school principal in March 1999 and resigned from the parish of Rutherford after the principal faced court and was placed on a bond.
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