Afghan president Hamid Karzai has confirmed his office received "bags of money", totalling several hundred thousand euros, from Iran.

Mr Karzai says nothing was hidden and the money was a form of aid from a friendly country.

At a news conference in Kabul, the president said the cash - some of which was allegedly handed over in plastic bags while he was visiting Iran - was used to maintain the presidential palace and run his office.

"The cash payments are done by various friendly countries to help the presidential office and to help dispense assistance in various ways to the employees around here, to people outside," he said.

"This is transparent and we are grateful for the Iranian help in this regard."

The New York Times reported on Saturday that Mr Karzai's chief of staff, Umar Daudzai, has been receiving regular cash payments from Iran.

"The government of Iran has been assisting us with five or six or 700,000 euros once or twice every year, that is an official aid," Mr Karzai said.

"[Mr Daudzai] is receiving the money on my instructions."

Citing unnamed Afghan officials, the newspaper said the payments total millions of dollars and go into a secret fund Mr Daudzai and Mr Karzai have used to pay Afghan politicians, tribal elders and even Taliban commanders to secure their loyalty.

"It's basically a presidential slush fund," one western official is quoted by the paper as saying.

"Daudzai's mission is to advance Iranian interests."

Iran is trying to expand its influence in the presidential palace in Kabul, and the United States says it remains suspicious of Iran's intentions.

State department spokesman PJ Crowley says Washington did not question Iran's right to provide financial assistance or Kabul's right to accept it.

But he says Iran has a history of playing a destabilising role with its neighbours.

- ABC/AFP