"I made a mistake, for which I am sorry, " said Wolfowitz, but declined to say whether he would resign.

Shaha Riza, once a staff member in the bank, was removed to work with the U.S. State Department when Wolfowitz took over at the World Bank in 2005, to avoid any conflict of interest.

While still on the World Bank payroll, Riza was rapidly promoted and ended up with a package of tax-free salary to about 193,000 dollars, more even than Secretary of State Condoleezza Rice receives before tax.

"I take full responsibility for the details. I did not attempt to hide my actions nor make anyone else responsible," Wolfowitz told a news conference.

He acknowledged that the situation surrounding Riza "had the potential to harm this institution," but argued that he had initially wanted no involvement in her employment terms.

"I proposed to the board that they establish some mechanism to judge whether the agreement reached was a reasonable outcome," he said. "I will accept any remedies they propose."

"For those people who disagree with the things that they associate me with in my previous job, I'm not in my previous job. I'm not working for the U.S. government, I'm working for this institution and its 185 shareholders," he said.