This is totally your call, I'm not saying what to do here, from the sound of it the temptation around it was definitely something worth ending the friendship over. But, I want to express an experience here for you to consider I'm not suggesting your wife feels as mine, or struggles with jealousy, or treats you like this, just expressing what ending friendships has done in my life.
My wife is very jealous, and downright controlling over who I communicate with, I try to comply with her wishes, and agreed with her, when she said it was inappropriate for us to be dating, and for my ex and I to have a text conversation without her knowing. Now to be fair this happened after only 2 months of "hanging out" with my now wife, and it wasn't for another year that my wife would even acknowledge that we were together. But, I digress, her point was, that if I was dating her, I shouldn't be communicating with an ex, after considering it for a few days I agreed. Cut things off completely with that ex, to focus on my new relationship, this eventually turned into an expectation that it was unacceptable for me to have any friends of the opposite sex, I would comply again and again ending friendships. Years later when we were very much officially dating, I discovered that my wife was not following the same rules herself that she had expressed to me. I had her phone in my suit pocket at her sisters wedding, she gave it to me, and her ex started texting her asking how her speech went, etc. I discovered this that night, and have very little understanding to this day of exactly how much communication was had, as all prior communication was deleted.
Without boring you with the rest of that story, my main point is, ending friendships should be done with careful consideration, I lost contact with very close friends whom I never had physical attraction to. I did so because I truly believed that it was better to put that in my relationship, and focus on it, than to have a plutonic friendship with someone of the opposite sex. I have entire groups of friends, actually (male and female) that I no longer communicate with largely due to this.
This whole experience damaged my marriage very much, and damaged some pretty close friendships of mine too, I have a hard time letting the resentment go from what my wife did, how she hid her conversations with her ex from me. How she still to this day, even though quite harmless, will still communicate with other men via social media. Yet, demanded I disclose any interaction with a female to her immediately, and still would if I communicated with any!
You have a good handle of your specific situation, and I do think at the very least removing yourself from one on one interactions would be a very good idea.
Make sure both you and your wife agree on this, talk about it, see what she thinks, decide what course of action makes her feel safe, and what she feels is acceptable, and also talk about how you feel.
No matter what you decide to do, continue being honest with your wife.
Best wishes.