The World Bank approved a controversial $3.75bn loan to build one of the world's largest coal-fired power plants in South Africa yesterday, defying international protests and sharp criticism from the Obama administration that the project would fuel climate change.

The proposed Medupi power station, operated by South Africa's state-owned Eskom company, was fiercely opposed by an international coalition of grassroots, church and environmental activists who said it would hurt the environment and do little to help end poverty. As planned, it would put out 25m tonnes of carbon dioxide a year and would prevent South Africa making good on a promise to try to curb future emissions.

The bank said it had acted to help South Africa escape a crippling power shortage. "Without an increased energy supply, South Africans will face hardship for the poor and limited economic growth," said Obiageli Ezekwesili, the World Bank's vice president for Africa.

But the bank's approval for the Medupi plant, though expected, was overshadowed by dissatisfaction from American and European donors, as well as a groundswell of protests.

America, Britain, the Netherlands, Italy and Norway registered their opposition to the loan by abstaining from the vote, the traditional method of dissent on the board which operates by consensus.

In a statement, the US treasury department said the loan was incompatible with the bank's stated commitment to promoting low carbon economic development.

"We expect that the World Bank will not bring forward similar coal projects from middle-income countries in the future without a plan to ensure there is no net increase in carbon emissions," it said. Britain, registering its abstention, noted the controversy surrounding the plant.

"The project raises several sensitive and potentially controversial issues which it has not been possible to resolve before this period began," a statement from Dfid said.

However, a World Bank official said the strong wording of such statements did not carry over to the Board's discussions of the loan. "It was not an easy decision," he said. "Everybody recognised the concerns about climate change, but this was a balancing act."

The vote by the World Bank had been widely seen as a test of the Obama administration's commitment to new guidelines put forward barely three months to shift aid to the developing world away from coal and fossil fuels to less polluting energy sources.

The administration had come under strong pressure from Democratic leaders in Congress as well as environmental organisations to try to block the loan.

Environmental organisations said its decision to abstain fell short.

"I am not going to give them points for abstaining. This was totally the easy way out," said Karen Ornstein of Friends of the Earth. "If the US were to follow its own clean coal guidance for multilateral development banks it would have had to vote no on this loan."

Michael Stulman of Africa Action said the entire project was misguided, and would do little to help poor South Africans. "This is one of those stereotypical development disaster stories," he said.

• This article was amended on 9 April 2010. The original said that the Medupi power station, as planned, would emit 25 tonnes of carbon dioxide. This has been corrected.