Venezuelan president Hugo Chávez has dared the US to expel his ambassador or cut off diplomatic ties in retaliation for his rejection of Washington's choice for ambassador to Caracas.

Tensions have been growing over Chávez's refusal to accept diplomat Larry Palmer and also over US criticisms of a legislative offensive by the president's congressional allies. Lawmakers have granted Chavez expanded powers to enact laws by decree for the next year and a half, a change that opponents condemn as antidemocratic.

Chávez said he would not accept Palmer as ambassador because of comments he made earlier this year suggesting morale was low in Venezuela's military and that he was concerned Colombian rebels were finding refuge in Venezuela.

The US state department has said it stands behind its nomination of Palmer, who is awaiting Senate confirmation. State department spokesman PJ Crowley said last week that Venezuela's decision to reject Palmer – after initially giving consent – would have consequences on relations with Caracas and that Washington would evaluate what to do.

"If the government is going to expel our ambassador there, let them do it!" Chavez said in a televised speech last night. "If they're going to cut diplomatic relations, let them do it! Now the US government is threatening us that they're going to take reprisals. Well, let them do whatever they want, but that man will not come."