World Bank President Paul Wolfowitz has apologised for "mistakes" made over the promotion and pay of an ex-colleague with whom he is romantically involved.
Mr Wolfowitz's partner, Shaha Riza, was moved to the State Department when he took the Bank's top job in 2005.
But the bank's staff association says she then received pay rises and promotions which were "grossly out of line" with the Bank's staff rules.
The controversy comes ahead of joint World Bank and IMF spring meetings.
Mr Wolfowitz also said he would accept any remedy that the World Bank's Board proposed.
The bank chief - formerly US deputy secretary of defence - has adopted a fiercely anti-corruption stance.
The latest furore threatens to undermine Mr Wolfowitz's personal campaign to combat corruption and poor governance.
Until now, Mr Wolfowitz has said he took "full responsibility" for the case, but said it was being left to a committee "that is dealing with it and I am comfortable with that".
But on Thursday he said: "I made a mistake, for which I am sorry."
Ms Riza had been a high-ranking communications employee at the bank working in the Middle East section.
When Mr Wolfowitz took over at the Bank in mid-2005, Ms Riza - then a Bank employee for eight years - was transferred to work for the US State Department, to avoid any conflict of interest.
But rapid rises in her tax-free World Bank salary to about $193,000 - more than the $186,000 Secretary of State Condoleezza Rice receives before tax - have aroused ire among other Bank employees.
In a memo to its members earlier in April, the World Bank Staff Association said that the speed of both promotions and salary increases were "grossly out of line" with the Bank's rules.
"Senior management has put forward a call for good governance," the memo said. "In order to be credible, senior management must model the behaviour it espouses."
While facing press questions about the case, Mr Wolfowitz has tried to shift focus back to the bank's remit of fighting global poverty.
He said the world's richest nations had given 5% less aid over the past 12 months.
"We have yet to see evidence of significant new flows translate into real resources for development programmes on the ground," he said.
Ministers and trade leaders from the 185-nation organisation are to meet on Saturday and Sunday in Washington.
The agenda will include issues including fighting diseases and the state of the world economy.