Dodd, chairman of the Senate Banking Committee, told CNN that Obama officials wanted the language added to an amendment limiting bonuses that could be paid by companies receiving federal bailout money. He said they were afraid that without it, the government would face numerous lawsuits from employees who were promised bonuses.

On Tuesday, Dodd denied to CNN that he had anything to do with adding the language, which has been used by officials at AIG to justify paying millions of dollars in bonuses to executives after receiving federal money.

"I did not want to make any changes to my original Senate-passed amendment, but I did so at the request of administration officials, who gave us no indication that this was in any way related to AIG," Dodd said in a statement released by his office. The nearly $800 billion stimulus bill was approved by Congress in February.

The White House did not immediately respond to CNN's request for comment

The admission comes amid a public furor over the $165 million in bonuses that were paid to AIG executives late last week after the struggling insurance company received nearly $180 billion in government bailout funds.

Both Congress and President Obama have expressed surprise over the bonuses and demanded that the money be paid back. Democratic leaders said late Wednesday that the House will vote on legislation aimed at recovering the bonuses.

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The final language of the Dodd amendment specifically excluded bonuses from contracts signed before the bill's passage -- a broad category that included the AIG bonuses. At the time, few objected to that move, which was designed to ensure the measure was constitutional.

Earlier on Wednesday, AIG CEO Edward Liddy told a House panel that decisions to pay the bonuses to AIG executives were made "in cooperation" with Federal Reserve officials.

"Everything we do we do in partnership with the Federal Reserve," Liddy said. "They have the ability to weigh in yea or nay on anything in discussion. "We've been talking about this within the board and with representatives of the Federal Reserve literally for three months."

Fury over the bonuses threatens to undermine Obama's efforts to solve the credit crisis and pull the economy out of a deep recession. The president has said he might have to ask Congress for money beyond a $700 billion bailout fund approved in October.

AIG has argued that the payouts were necessary to retain top employees with the specialized knowledge to dispose of $2.7 trillion in complex securities that ended up dragging the company to the brink of collapse last year.

Meanwhile, Attorney General Eric Holder said the Justice Department was working with the Treasury Department to determine how it might go about recovering the bonuses.

"We're working with the Treasury Department to make them aware of what legal abilities they have," Holder told a news briefing.