Mr Wolfowitz has faced calls to resign after admitting he helped Shaha Riza win a promotion to a high-paying job at the international lender.

The board earlier adjourned a day-long meeting held to consider his future.

Mr Wolfowitz has apologised for his handling of the situation which has drawn strong criticism from bank staff.

Despite the crisis he has won the backing of US President George Bush, who praised his efforts to "lift people out of poverty across the world".

But the scandal has weakened Mr Wolfowitz at a time when he is facing controversy over an anti-corruption drive that has led to the suspension of aid to some countries.

'Possible actions'

The president must acknowledge that his conduct has compromised the integrity and effectiveness of the World Bank

Alison Cave, World Bank staff association representative

Wolfowitz statement World Bank: Have Your Say

In a statement, the World Bank's board said it had never given its approval for a wage rise for Ms Riza ordered by Mr Wolfowitz, despite claims to the contrary by the World Bank president.

Mr Wolfowitz - a former US deputy secretary of defence - at first denied that he was involved in the decision about Ms Riza's salary, but later admitted: "I made a mistake, for which I am sorry."

He said he had been in "uncharted waters" in his new job and would follow the recommendations proposed by the board.

'Blatant hypocrisy'

The bank's staff association said the pay rises and promotions Ms Riza received were "grossly out of line" with bank rules, had destroyed staff trust in his leadership and "compromised the integrity and effectiveness" of the bank.

In an editorial, Britain's Financial Times newspaper called for Wolfowitz to step down.

"If the president stays, (the World Bank) risks becoming an object not of respect, but of scorn, and its campaign in favour of good governance not a believable struggle, but blatant hypocrisy," it said.

Ms Riza had been a high-ranking communications employee at the bank's Middle East section.

When Mr Wolfowitz took over at the bank in mid-2005, Ms Riza was transferred to work for the US state department, to avoid any conflict of interest.

But rapid rises in her tax-free World Bank salary to about $193,000 - more than the $186,000 Secretary of State Condoleezza Rice receives before tax - have aroused ire among other bank employees.

Aid

The controversy comes ahead of joint World Bank and IMF spring meetings in Washington.

While facing press questions about the case, Mr Wolfowitz has tried to shift focus back to the bank's remit of fighting global poverty.

He said the world's richest nations had given 5% less aid over the past 12 months.

"We have yet to see evidence of significant new flows translate into real resources for development programmes on the ground," he said.

The agenda for the weekend talks will include issues including fighting diseases and the state of the world economy.