Most Revd Michael Burbridge said he is opposed to the idea that people who identify as a gender different to that of their birth will not be allowed to use public bathrooms in Charlotte, North Carolina.
Bishop Burbidge told The News & Observer the law is too divisive.
It would also exempt local governments from passing certain minimum-wage or anti-discrimination rulings relating to gay, lesbian or transgender people.
He said: "I think it was in the spirit of doing what was best for the community, but obviously we can't ignore the fact that there has been such reaction and misunderstanding.
"Maybe we tried to do too much within that one bill that has created such discord."
"No person should feel as though they are unwelcome in our communities of faith.
"The priests of this Diocese, myself included, remain committed to speaking with anyone who has concerns about how we operate or what we believe.
"This applies regardless of one's gender or gender identity.
"Building strong relationships is fundamental to healthy faith communities.
"All people are made in the image and likeness of God as man and woman, and we stand ready to continue accompanying all people in their faith walk.
"We would expect that those wishing to know the Catholic Church more deeply would also respect our fundamental beliefs and teachings."
The Diocese of Raleigh also said it assumes people use bathrooms with good intentions and that liberty must be respected.
The Catholic Diocese of Raleigh includes more than 225,000 parishioners.
