Johansson was due to take the lead role in "Rub and Tug," which tells the story of late real-life transgender man Dante "Tex" Gill, an American massage parlor operator and pimp who became a major crime figure in the 1970s and 80s. Born Lois Jean Gill, he identified as male.
The casting of Johansson sparked outrage, particularly from the LGBT+ community and has been used to highlight the limited opportunities given to transgender actors and actresses.
Johansson said she had decided to pull out of the film for ethical reasons.
"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," she said in a statement to LGBT+ magazine Out.
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"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," Johansson added.
'No excuses'According to LGBTQ advocacy group GLAAD, not one of the 109 movies released by Hollywood's seven biggest studios in 2017 included a transgender character.
Transgender actresses Trace Lysette and Jamie Clayton were two of the major voices speaking out on Twitter.
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Clayton tweeted that the real issue was that it was difficult for a trans person to be cast in any role other than a trans character.
"There are no excuses for not hiring trans actors for trans roles and leads in films and TV," tweeted transgender actress Laverne Cox, who became known for her role as Sophia Burset in the Netflix series "Orange is the New Black."
Filming for "Rub & Tug" has not begun yet and no replacement for Johansson has been immediately announced.
law/sms (Reuters, AFP, AP)