The Nothing Compares 2 U hitmaker is a longtime critic of the papacy and has repeatedly taken aim at Catholic chiefs over claims child abuse by priests has been covered up for decades.
In a surprising move, the 85-year-old religious leader announced on Monday that he is to retire within the next two weeks, making him the first pope to step down in almost 600 years.
O'Connor has now issued a statement on her website, insisting Pope Benedict's resignation should mark the beginning of a new age of honesty within the Catholic Church.
She wrote: "I would like to congratulate Pope Benedict on his wise decision to retire before the very worst of what has been going on is discovered. I appreciate his alluding to some of it in his statement and assure him The Most High forgives those who can faithfully say they did wrong.
"The church has been brought into dreadful disrepute by lies and blasphemies against The Holy Spirit. Benedict's greatest achievement is this act of retiring. There is a chance now for the church to be re-built and made fit to house The Holy Spirit."
O'Connor famously ripped up a picture of Pope Benedict's predecessor John Paul II on US TV show Saturday Night Live in 1992.