"We deeply regret and apologize for the serious error we made yesterday ... As a result of our continued reporting over the next several hours ultimately we determined the information was wrong and we corrected the mistake on air and online," ABC News said in a statement.
"Effective immediately, Brian Ross will be suspended for four weeks without pay," added ABC News, owned by the Walt Disney Co.
Soon after, ABC News reported that Flynn, citing a confidant, was prepared to testify that Trump directed him to make contact with Russians when he was a presidential candidate.
Wall Street's main indexes all fell by more than 1 percent after the report.
ABC News later issued a correction that the source clarified that Trump had assigned Flynn and a "small circle of senior advisers" to find ways to improve relations with Russia and other hotspots during the presidential campaign.
"It was shortly after the election, that President-elect Trump directed Flynn to contact Russian officials on topics that included working jointly against ISIS," ABC News said.