Wolfowitz, one of the key neoconservative engineers of the strategy that led the United States to war in Iraq, owed his post at the World Bank to the Bush administration, even though he had not served the president since 2005.

The White House had resolutely stood by its former deputy defence secretary as the month-long scandal over a pay package Wolfowitz secured for his girlfriend unfolded, but in past days, as World Bank directors discussed the scandal, its support began to crumble.

"We would have preferred that he stay at the bank, but the president reluctantly accepts his decision," the White House said in a statement just after Wolfowitz announced he would resign effective June 30.

"The president will have a candidate to announce soon, allowing for an orderly transition that will have the World Bank refocused on its mission."

Wolfowitz's departure was a reminder of the tough times facing the Bush camp, but analysts pointed out that even the very public fall from grace of a longtime pal was hardly at the top of Bush's list of concerns.

"This is one of the least of his worries," said political analyst Larry Sabato. "Remember this was a soft landing job for Wolfowitz after he left the Pentagon."

"Iraq is his biggest worry and I would even put Attorney General (Alberto) Gonzales as more of a problem than Wolfowitz," said Sabato, referring to Bush's loyal supporter who is at the centre of a scandal over the allegedly political sackings of nine federal prosecutors.

The chaos brewing in Iraq is a source of constant pressure for Bush, who has until September to come up with a new, last-ditch strategy amid increasing opposition from the Democratic-controlled Congress, which wants to set a deadline for withdrawal. Waning support for the war exacted a heavy toll on Bush's Republicans during the November election and the party's loss of seats in the House and Senate means Bush is facing stormy times ahead.

The electoral defeat sealed the fate of former defence secretary Donald Rumsfeld, who Bush stood by for months just as he has with many of his loyal allies.