Grahame Maxwell, who retired from North Yorkshire Police on Tuesday, will receive the payment because he was required to leave his £133,000-a-year post before being able to secure the full pension entitlement available to officers after 30 years of service.
His employer, North Yorkshire Police Authority (NYPA), has confirmed Mr Maxwell will receive £247,636 - a figure described as "ridiculous" by Julian Smith, Tory MP for Skipton and Ripon.
The payment is governed by nationally-agreed chief officer regulations and the police authority has no option but to pay up.
But Mr Smith said taxpayers would find the figure "shocking" and he would be raising the issue with Policing Minister Nick Herbert.
It is believed to be the first time the compensation regulation has been activated following a decision not to renew a chief constable's contract.
But the existence of the regulation is likely to come into sharper focus when the newly-elected police commissioners take over from police authorities at the end of the year. Commissioners will have the power to remove chief constables from office but exercising that power may prove costly.
Mr Maxwell narrowly avoided being sacked last May when he admitted gross misconduct after an inquiry found he tried to unfairly help a relative during a recruitment exercise. His request to extend his five-year fixed-term contract beyond this May was turned down by NYPA last autumn.
He had completed 28-and-a-half years of service when his contract ended and under national police pension and employment rules he is entitled to a compensation payment because he left before he has 30 years of service under his belt.
The payment is based on a calculation of the difference between the lump sum he would have been entitled to if he had completed 30 years and the lump sum entitlement for 28-and-a-half years.
In a statement, NYPA said: "This payment is required to be made under Police Regulations which require a police authority to compensate a chief police officer whose Fixed Term Appointment (FTA) comes to an end, or where they are required to resign or retire, before they reach 30 years' service.
"The only way in which NYPA could have avoided making this payment would have been to extend Mr Maxwell's FTA to the point at which he achieved 30 years' service or beyond."
NYPA chief executive Jeremy Holderness said: "It is important that the public understand that the authority had absolutely no discretion in this matter whatsoever.
"Mr Maxwell became entitled to receive this payment as a matter of law, following the authority's decision not to extend his fixed term appointment.
"Most conditions of service of police officers are determined through national agreement and, once agreed, are enshrined in statute and this requirement is no exception."
Mr Smith said: "The taxpayers of North Yorkshire will find this figure shocking. I have already written to the Policing Minister and I am meeting with him to make the case that never again will a chief officer guilty of gross misconduct be able to take these ridiculous sums of money."
A Home Office spokeswoman said: "Police authorities signed up to these arrangements several years ago but we are looking at them again in the light of the recent Winsor Review.
"It recommended that misconduct hearings should have the power to remove all or part of a chief constable's severance payment and we have asked the Police Negotiating Board to consider this."
