(Recasts to add details from news conference, comments by staff association and member countries, and background)

WASHINGTON, April 15 (Reuters) - World Bank President Paul Wolfowitz on Sunday dug in his heels over the promotion he approved for his girlfriend and said he intends to stay in his job, even as bank member governments voiced “great concern” the institution might not be able to function properly.

“I believe in the mission of this organization and I believe that I can carry it out,” Wolfowitz told a news conference shortly after the World Bank development committee issued a strongly-worded statement conveying unease.

The committee of aid ministers from around the globe said it was crucial the bank’s credibility not be tarnished by the controversy over the high-paying promotion Wolfowitz agreed for his girlfriend, bank employee Shaha Riza, before she was assigned to work at the State Department.

“The current situation is of great concern to all of us,” the ministers said in a communique after the committee met.

“We have to ensure that the bank can effectively carry out its mandate and maintain its credibility and reputation as well as motivation of the staff,” the ministers said.

In a news conference shortly after those tough words, Wolfowitz said a decision on the matter should be left to the bank’s board of member countries.

“We need to work our way through this,” he said. “The board is looking into the matter and we’ll let them complete their work.”

The former Pentagon No. 2 cited his accomplishments since taking the helm of the poverty-fighting lender in mid-2005, pointing at several projects in Africa, where he has found his strongest backing.

But the bank staff association renewed a call for Wolfowitz to quit. “We do not see how he can possibly regain the trust of the staff,” association chair Alison Cave said. “We don’t see how he can regain the credibility that has been lost.”

“I don’t think he fully understands how much this has damaged the organization,” she said.

European countries, including Britain and Germany, were the most vocal in making a case that the scandal threatened to cripple the bank.

In an interview with Reuters, Dutch Development Minister Bert Koenders said he believed the row had put the bank into a crisis situation that needed to be resolved quickly.

“It has become clear to us ... that there is also a lack of trust at the moment in the leadership and in the management. So, that is something that has to be resolved,” Koenders said.

Sources monitoring the closed meeting said several European nations touched on the issue, but did not call outright for Wolfowitz to step down.

MORAL AUTHORITY QUESTIONED

Staff and development activists accuse Wolfowitz of breaking bank rules in helping to arrange Riza’s promotion.

They argue the institution’s moral authority is in tatters, especially its authority to make countries who receive aid accountable for the money, a priority for Wolfowitz, who has ruffled feathers with a strong-arm anti-corruption push.

However, his backers in the White House have come to his defense and, like other World Bank members, have cautioned against judging Wolfowitz until the examination by the bank’s board wraps up.

Still, the scandal has stirred up lingering antagonism over Wolfowitz’s appointment to the bank by the Bush administration and bitterness over the prominent role he played in the U.S. decision to invade Iraq.

“It’s time for the board to show Wolfowitz the door,” said Eric Gutierrez, international policy coordinator for ActionAid. “It is absolutely hypocritical for the World Bank to stand against corruption in poor countries when its president is embroiled in a corruption scandal.”

Earlier, Wolfowitz had appealed to rich nations to deliver on aid promises and to keep the bank’s coffers stocked so it can keep lending to needy countries.

But his appeal was clouded by the concerns many of the bank’s major donors have on his leadership, prompting worries inside the bank that some of those nations could pull the plug on funding for the bank’s program for the poorest countries. (Additional reporting by Paul Eckert, Amran Abocar and Glenn Somerville)