Paul Wolfowitz resigned as president of the World Bank last night, ending weeks of turmoil over the lavish pay rise he arranged for his girlfriend that triggered the worst crisis in the institution’s history.

Mr Wolfowitz’s departure was announced by the Bank’s 24-member board, which had spent two days negotiating a “face-saving” deal for the embattled president, after an ethics panel found him guilty on Monday of breaking institution rules over the $50,000 (£25,000) a year, tax-free pay rise he negotiated for Shaha Riza, his British-born girlfriend.

In a statement released by the board, Mr Wolfowitz, the former US deputy Defence Secretary and a controversial World Bank head after his role as one of the chief architects of the Iraq war, said that he would resign on June 30.

In its statement, the board appeared to fall short of Mr Wolfowitz’s demands of the past 48 hours that he be exonerated by the Bank before he agreed to go, in particular his request that the institution took partial responsibility for poor advice given to Mr Wolfowitz before he dictated the terms of Ms Riza’s pay rise.

“He assured us that he acted ethically and in good faith in what he believed were the best interests of the institution and we accept that,” the board said in its announcement of Mr Wolfowitz’s resignation. But it did concede that the advice given to Mr Wolfowitz was “not a model of clarity”.

Mr Wolfowitz said in his statement: “The poorest people in the world . . . deserve the very best we can deliver. Now it is necessary to find a way to move forward.” He said he was pleased the bank had accepted his assurance that he had acted ethically and in good faith.

The deal means that the board, which in the Bank’s 63-year history has never dismissed a president, did not have to put Mr Wolfowitz’s fate to a vote. Several European nations, particularly Britain, were thus spared having to publicly wield the knife against a close ally of President Bush.

Until Monday Mr Bush had refused to budge on the question of Mr Wolfowitz. The US President, and many US conservatives, viewed the fate of Mr Wolfowitz as a proxy battle — fuelled by European anti-Americanism — against the Administration’s policies.

But Mr Bush, during a White House press conference with Tony Blair hours before Mr Wolfowitz’s announcement, made clear that he could no longer save him. “I regret that it’s come to this,” he said.

The US has traditionally chosen the head of the World Bank, and there were signs last night that part of the deal — despite recent calls by European members that the practice should end — would allow Washington to choose Mr Wolfowitz’s successor.

Henry Paulson, the US Treasury Secretary, said that it was important for an American to continue to be appointed World Bank president. Early speculation on US candidates centred on Robert Kimmitt, the Deputy Treasury Secretary, and Robert Zoellick, the former Deputy Secretary of State.

Mr Wolfowitz dictated the terms of his girlfriend’s pay rise, but maintained in an impassioned plea before the board on Monday night that he intervened in her job status only after being requested by the bank’s ethics committee, and after he had sought its advice on how he should act.

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