The embassy will be moved to a larger U.S. compound in Rome that houses the embassy to Italy and the U.S. Mission to the U.N. offices, Politico reported.
The move is to be completed by 2015, and is expected to save more than $1.4 million and increase security, the official, who was not identified, said during a conference call with reporters.
News of the move touched off a flurry of criticism in right-wing media, and former Florida Gov. Jeb Bush joined in, saying in a Twitter post: "Why would our President close our Embassy to the Vatican? Hopefully, it is not retribution for Catholic organizations opposing Obamacare."
The National Republican Senatorial Committee created a petition this week asserting, "President Obama plans to close the U.S. Embassy to the Vatican."
"This certainly isn't the first time that the Obama Administration has been perceived as taking actions hostile toward religion and religious freedom," said Brad Dayspring, the group's spokesman.
"I think there are a series of myths that are running around out there," the State Department official said.
He said no country has an embassy in Vatican City, as critics of the move assert, and he said there is no truth to claims that the move will include "changing the residence of the Ambassador to the Holy See. I have seen that as well. The Ambassador's residence is not part of this at all."
"The third [myth] is that this represents a downsizing of our presence when this happens," he said. "That is not true as well. Our diplomatic presence will remain one of the largest missions accredited to the Holy See, and that there is no reduction in our diplomatic staff in this process."
He said all diplomatic embassies are located in Rome, not Vatican City.