Fernando Lugo, who was elected president last year, faced two paternity claims this month and admitted this week that he fathered one of the children while the Vatican still considered him to be ordained.
Bishop Rogelio Livieres alleged on Tuesday that, when confronted with the women's complaints five years ago, Mr Lugo, himself a former bishop, said it was "possible" that their children were his as well.
Bishop Livieres said the church was aware of a possible abuse of authority by Mr Lugo, now 57, but allowed him to resign without making the complaints public, thereby allowing him to stand for the presidency.
"The church hierarchy knew for years of this misconduct by Lugo, but kept silent. Now there's nothing that it can do," Bishop Livieres told Radio Mil, a Paraguay radio station.
The Paraguayan bishops' conference said in a statement that it had never received "formal written complaints" from women about Mr Lugo, and that it "laments and rejects" the claim that the church in Paraguay covered up immoral conduct.
However, Bishop Livieres said Mr Lugo was called to explain himself to the church hierarchy after Monsignor Antonio Lucibello, the Vatican's most senior representative in Paraguay at the time, received the women's written complaints.
Bishop Livieres did not say how many women allegedly complained.
"Lugo responded: 'Well, it could be, it's possible. I don't deny the complaints,"' the bishop said. "When they insisted he clarify his comments, he decided to resign instead."
"The church has the names of these women, but obviously won't publish them," he said.
He added that none of the complaints in 2004 came from Viviana Carrillo, whose 2-year-old child was acknowledged by Mr Lugo as his own last week after she threatened to sue.
Another woman came forward with similar allegations this week, and if Bishop Livieres' statement proves true, still more could emerge with paternity claims against the president.
Both women said they met Mr Lugo when they were teenagers.
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