The International Monetary Fund (IMF) has withheld a $70m payment to the Afghan government after rejecting its plan to overhaul a failed bank at the centre of a $900m corruption scandal.
The move could halt billions of dollars in aid to Afghanistan because of legal requirements that stop donors giving aid to countries that have fallen foul of IMF rules.
Diplomats taking part in negotiations between the Afghan government, donor nations and the IMF said President Hamid Karzai's government had failed to convince them its proposals to end the crisis would work, according to Reuters.
Karzai's cabinet met to discuss the Kabul Bank crisis last Thursday, while finance minister Omar Zakhilwal then sent a letter to the IMF at the weekend containing compromise proposals.
Kabul Bank began a spectacular fall from grace last year when it emerged that it had made loans worth hundreds of millions of dollars to shareholders and other politically connected Afghans.