She was roped in to portray the role of Jean Marie Gill, who succeeded in the massage parlour and prostitution business in the 1980s by assuming the identity of a man, Dante 'Tex' Gill.
While she had earlier defended the role, 'The Avengers' star on Friday announced that her decision to pull out was made "in light of recent ethical questions raised surrounding my casting."
"In light of recent ethical questions raised surrounding my casting as Dante Tex Gill, I have decided to respectfully withdraw my participation in the project," Johansson said in a statement to Out magazine.
"Our cultural understanding of transgender people continues to advance, and I've learned a lot from the community since making my first statement about my casting and realize it was insensitive. I have great admiration and love for the trans community and am grateful that the conversation regarding inclusivity in Hollywood continues," she said, as reported by Entertainment Weekly.
"While I would have loved the opportunity to bring Dante's story and transition to life, I understand why many feel he should be portrayed by a transgender person, and I am thankful that this casting debate, albeit controversial, has sparked a larger conversation about diversity and representation in film," the 33-year-old added.
After people started criticising the 'Captain America: Civil war' star on social media for her role, Johansson had justified the same by pointing out that other actors who have played transgender characters in the movie have won awards for all their performances.
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