A spokeswoman for the Foreign Ministry in Beijing said the decision "upheld justice and safeguarded the World Bank's principles".

The BBC's Chinese affairs correspondent James Miles: "Beijing says the project will alleviate poverty"

The loan has alarmed Tibetan supporters because part of it will be used to resettle farmers on land traditionally inhabited by Tibetan nomads.

China argues it is an important project intended to alleviate poverty.

The loan will enable the authorities to fund the transfer of 58,000 Han Chinese farmers from an over-populated area of Qinghai province to an area further west, historically inhabited by Tibetan nomads.

The United States - and Tibetan activists - argued that the loan effectively endorsed Beijing's policy of trying to dilute the ethnic Tibetan population.

In a concession to the US, the Bank imposed a temporary freeze on the resettlement money until a panel reviews whether the decision violates the Bank's own rules.

Dalai Lama's birthplace

Western Qinghai is not actually part of Tibet, but was the birthplace of the Dalai Lama.

The United States and Germany both voted against the proposed loan and a further four of the board's 24 members abstained, World Bank sources said.

World Bank spokesman Peter Stephens: "These people have incomes of about $60 a year and have stunted children"

The World Bank typically approves projects via a consensus and the approval of a project in the face of US objection is a first for the organisation.

The loan was delayed following the US threat, as World Bank Chairman, James Wolfensohn, attempted to find a compromise.

Beijing angry at Washington

China accused the United States for attempting to block the funds.

On Thursday, a government official demanded that Washington "stop using the Tibetan issue to interfere in China's internal affairs".

Beijing said the American stand was aimed at damaging the unity of China's different ethnic groups and called on Washington to drop its opposition to the loan.