The Afghan president, Hamid Karzai, has unilaterally taken control of the country's top electoral watchdog, provoking outrage from western diplomats, the Guardian has learnt.

The Electoral Complaints Commission (ECC), which forced Karzai into a runoff election after it disqualified nearly 1m fraudulent votes in last year's presidential election, previously included three foreign experts named by the UN.

However, according to a new presidential decree published today, Karzai will have the exclusive power to appoint all five panel members.

His decision to "Afghanise" the ECC came while parliament was in recess.

It provoked a shocked reaction from western diplomats, who fear parliamentary elections – due to take place in six months – will be fatally undermined by a repeat of last year's electoral fraud.

Such an outcome would not only destroy the credibility of parliament, it would also be a further distraction to international efforts to push back the Taliban and build popular confidence in the Afghan government.

One foreign election expert described the decree as a "stunning" development.

A western diplomat said Karzai had given "two fingers" to the western donors who had pumped millions of dollars into establishing democratic elections in the country.

He said the Afghan president was using his power to make laws while parliament was not sitting in order to get rid of the three UN-appointed foreigners who had dominated the five-member ECC.

The commission's Canadian chairman and his two non-Afghan colleagues were instrumental in demanding an investigation into widespread fraud during the election last summer.

Karzai was stripped of 954,526 votes and forced to accept a second round of voting after the ECC's intervention left him short of the majority he needed to win outright.

Karzai has never accepted either the ECC's verdict or that there was widespread fraud, instead blaming foreigners for "defaming" the process.

Abdullah Abdullah, the runner-up in the presidential election, said the presence of foreign commissioners last year was the only thing that prevented the country falling into "absolute turmoil".

He told the Guardian: "It is a step backwards and it has to be challenged by parliament and the international community.

"If we are left with this situation as it is today, it could seriously jeopardise the efforts being made on the military front."The election decree also does nothing to address foreign concerns about the Independent Election Commission, the Afghan organisation charged with running the vote.

Western diplomats threatened to withdraw funding if the commission was not overhauled and the chairman – heavily criticised for being biased towards Karzai – replaced.

Karzai has made no secret of his desire to "Afghanise" the membership of the ECC, but most diplomats thought he would be unable to do so because the constitution says election law cannot be changed within a year of a national vote.

However, the palace argues the constitution only prevents parliament from changing electoral law while presidential decrees are not so constrained.

By the same logic, Karzai's aides argue that parliament would be unable to use its power to challenge the decree within 30 days of returning to work.

Diplomatic sources say Kai Eide, the head of the UN in Afghanistan, had struck a private deal with Karzai under which he will use his new powers to appoint at least two foreigners to the election watchdog.

But that will mean Karzai's Afghan appointees would hold the balance of power in the commission and be unlikely to challenge his wishes.

In another development likely to infuriate the president's western backers, he has defied US pressure to pass a separate decree to help fight corruption.

The failure to pass the decree before parliament returned to work on Saturday means a key pledge to enact new anti-graft laws legislation by the end of February, made by Karzai at the international conference on Afghanistan in London last month, will almost certainly not be met.

The US hoped the decree would include measures to strengthen and give independence to the High Office of Oversight, an anti-graft body set up last year that has been criticised for being overshadowed by the president, and also establish an international monitoring body.

It is now extremely unlikely that parliament will pass the legislation in time, and legal delays could hold it up indefinitely.