The church restored the original photo to the site Thursday, a day after Russian bloggers discovered the photo had been altered, The New York Times reported.
In the 2009 photo, Kirill is shown wearing what appeared to be a Breguet watch worth at least $30,000.
The church blamed photo editors in its press service for the "technical mistake."
"A gross violation of our internal ethics has occurred, and it will be thoroughly investigated," the church said in a statement. "The guilty will be severely punished."
On Sunday, Kirill told a Russian television journalist he had searched through gifts and found the Breguet watch but said he had never worn it and suspected any photos of him wearing it had been doctored with Photoshop.
The controversy has intensified criticism of the church's displays of wealth and power and bloggers have called the church hypocritical.
The Times noted the Russian Orthodox Church has gained power over the past decade and become so close to the Kremlin that "it often seems like a branch of government."