City Clerk Donna Spano's monthlong absence from the job led to her resignation Wednesday.
Mayor Michael Yakes said Spano agreed to a separation deal during a special meeting to discuss her case.
In approving the agreement, the City Council increased Spano's severance pay from $15,000 to $25,000 and added a one-time $715 payment to cover her health insurance premium through the end of the year.
One resident, speaking in support of Spano, called the city's action "truly demeaning and nasty."
Spano had been placed on administrative leave when she failed to return to work after a doctor's appointment last month.
As a "charter employee," Spano worked without a contract and could be dismissed at any time for any cause.
In a letter that accompanied her signed separation agreement, Spano expressed her "great sadness" over leaving the city.
"I have been a loyal and productive employee of the city for 13 years and regret that situations have arisen that make it necessary for me to (resign)," she said. Spano had been the city clerk for two years and earned $52,000 a year.
Spano criticized the council for discussing her work status at a previous meeting without informing her that the matter would come up.
"I found it very unfair and shocking that a meeting to discuss my future and my life would be held without my knowledge," she wrote, adding that she had no opportunity to defend herself, present paperwork requesting a medical leave, or react to the then-proposed separation agreement.
Spano said that because of "mounting medical bills and general living expenses" she felt she was "forced" to sign the separation agreement without a guarantee of a larger settlement.
She did not attend Wednesday's council meeting under her doctor's direction.
"Donna has worked for the city for 13 years, and it's only right we support her now," said council member Michele King, responding to Spano's request.
"This is a situation we've dealt with an awful long time," said council member Bob Worthington, adding later that "the city of Gulfport is not the winner here."