Afghan President Hamid Karzai said on Monday his office receives cash in bags from Iran, but said it is a transparent form of aid that helps cover expenses at the presidential palace and that the United States makes similar payments.   

The comments came after a report Sunday that Karzai's chief of staff, Omar Dawoodzai, receives covert bagfuls of money -- possibly as much as $6 million in a single payment -- from neighboring Iran in a bid to secure influence and loyalty.

The New York Times, citing an unnamed Afghan official, said that millions of dollars in cash channelled from Iran have been used to pay Afghan lawmakers, tribal elders and Taliban commanders.   

Karzai said he gets money from several "friendly countries" but named only the United States and Iran, the latter contributing up to 700,000 euros ($976,500) twice a year.   

He will continue to ask for Iranian money, he added.

"The government of Iran assists (my) office with five or six or seven hundred thousand euros once or twice a year, which is official aid," Karzai told reporters at a joint press conference in Kabul with visiting Tajik President Imomali Rakhmon.   

"This is transparent, this is something that I have discussed even with (former) President George (W) Bush, nothing is hidden, the United States is doing the same thing ... it does give bags of money, yes, it's all the same."    

Karzai said the money was used for palace expenses, salaries and for "people outside," but gave no further details.

"Cash payments are done by various friendly countries to help the presidential office to help expenses in various ways to help the employees around here, and people outside," Karzai said. "We will continue to ask for cash from Iran."    

In Tehran, the semi-official Fars news agency said Iran's embassy in Afghanistan denied the New York Times report.

"Such baseless rumors are spread by some Western media with the aim of harming growing relations between the two neighbor and friendly countries," Fars quoted the embassy as saying in a statement.

The insurgency raging in Afghanistan is now the bloodiest it has been since the 2001 ouster of the Taliban, despite the presence of 150,000 foreign troops.

Afghanistan and its Western allies are dangerously underestimating Iran's destabilizing influence on the country, a former governor of a border province who claims he was ousted for his criticisms of Tehran told Reuters this week.

In Washington, State Department spokesman P J Crowley said the United States had concerns about Iran's motives in providing the support, not necessarily about how it was delivered.

"We do not question Iran's right to provide financial assistance to Afghanistan, nor do we question Afghanistan's right to accept that assistance," Crowley said. - Reuters