Taken aback by the strength of opposition, which included 61 members of Congress, pro- Tibetan independence groups and almost half of the bank's own 24-member board, the bank president James Wolfensohn flew back from Paris to headquarters in Washington to chair personally a vote on the project.
At the same time China dispatched a nine-year-old boy, who sits at the centre of its struggle to win over the hearts of the Tibetans, to the troubled region to demonstrate its determination to maintain control there.
The project that has sent temperatures soaring is part of a $160m (pounds 104m) poverty alleviation scheme in the Qinghai province of north-west China. At its centre is a scheme to move 58,000 impoverished farmers who earn less than pounds 50 a year several hundred miles west.
Their proposed new home is a part of the province that was once ruled by Tibet and still inhabited by nomadic Mongol herders and Tibetans. The exiled Tibetan spiritual leader, the Dalai Lama, was born there.
Critics, such as the Washington-based International Campaign for Tibet, say the influx of Han Chinese settlers will swamp the region, fuel ethnic tension and is really aimed at anchoring restive Tibetan regions closer to China. The World Bank and China both deny the scheme will have any political effects and say it is a straight poverty alleviation project.
With battle lines drawn, the World Bank met on Thursday in Washington to vote on the contentious issue. Peking eventually generated enough support for the project, but opposition from the US and Germany forced the bank to agree to the unprecedented appointment of an inspection panel, charged with reviewing whether the bank had violated its own rules on the environment, resettlement and disclosure.
After the provisional approval, American and exiled Tibetan students demonstrated against the decision and one US Senator, Connie Mack, attacked the World Bank for supporting "this appalling act of cultural genocide". Alison Reynolds, director of the UK-based Free Tibet Campaign, said: "There is no disguising the fact that approval of this project is political. The World Bank has likened the resettlement to a move from Paris to Lyon; in reality it's more like a move from Belgrade to Pristina.
"Now it is up to the Executive Directors of the Bank to ensure that the inspection panel process is respected and not subject to the sway of China."
China says it has no objection to the inspection panel, and insists it will allow interested parties unfettered access to the project at any time without government supervision. "We are in favour of transparency. Transparency brings to light facts and scotches rumours," Chinese officials told the World Bank board.
But in an indication of the sensitivity of the issue in China, Peking has also dispatched the boy it chose as the reincarnation of the Panchen Lama to Tibet to emphasise to Tibetans that China intends to keep a tight grip on the region.
"All the lamas and the [Buddhist] believers should love the Communist Party of China ... We must follow the instructions of [Chinese] President Jiang Zemin ... to safeguard the country and serve the people," China's official Xinhua news agency quoted the boy as saying only a few hours after the World Bank vote.
Peking's Panchen Lama, whose name is Gyaincain Norbu, was enthroned by China in 1995 after the Dalai Lama angered Peking by choosing a different reincarnation. The conflict raised support for the Dalai Lama both in Tibet and a furious Peking has since launched a "patriotic education campaign" in Tibet aimed at enforcing loyalty to China.
"China is very aware of the Tibetans' loyalty to the Dalai Lama and this visit is aimed at reminding Tibetans that this is the official choice and he has to be accepted," said Kate Saunders of the London-based Tibet Information Network.
The Dalai Lama's government-in-exile certainly interpreted things that way. It called Gyaincain Norbu an "imposter". Peking has detained the rival boy chosen by the Dalai Lama, and he is thought to be under house arrest in the Chinese capital.
Although China claims its sovereignty over Tibet dates back to the 13th century, its troops did not enter the capital Lhasa until 1951. Since a revolt in 1959 led to the flight of the Dalai Lama, the Chinese have consistently encouraged Han Chinese to move to Tibet and to border regions such as Qinghai.
In the 1930s there were no Chinese in Qinghai; now there are five million, and they also form a substantial part of Tibet's 2.3 million population, especially in the east. With such a sparsely inhabited land, many Tibetans fear they will may end up a minority in their own country in the near future.Reuse content