Hughes was stunned when he learned of Graham Kelly's resignation as the chief executive of the FA, and was at a loss to understand the circumstances behind his action.
The furore surrounds the FA deciding to pledge pounds 3.2m to the hard-up FAW, with the FA chairman Keith Wiseman insisting such assistance was "commonplace".
The FAW has reportedly now agreed to accept a reduction of almost a third in the proposed payment, the existence of which allegedly only came to light when the FAW sent in their invoice for the first instalment.
Wiseman, who won the backing of Wales for his nomination by the British Associations as a Fifa vice-president, is refusing to step down from his FA post, despite a unanimous vote of no confidence from the executive committee, who will now seek to endorse the move at a special FA council meeting in January.
Hughes has only been involved in negotiations for the last 18 months, the talks having been started by Brian Fear, a former president. Fear had stepped down in line with an FAW policy which sees a new president appointed every three years.
"All that money was to go to charity, the Welsh football trust, to help promote and develop our youth and women's football in Wales," Hughes said.
"There was nothing sinister in it and it certainly had nothing to do with the senior side. Whatever has been done has been with the full knowledge of the FAW council. I passed on the resolution to them and they voted on it.
"What has happened has upset me and I am quite shocked at the news of Graham's resignation because he is a great friend. The FA have lost a good man.
"I've a lot of admiration for the work he has done at the FA and his work which has seen him devote a lot of his time to Uefa and Fifa."
The Sports Minister, Tony Banks, said: "It is a matter great sadness to hear of events at the FA. However, it is for the internal workings of the FA to resolve the current situation.
"In the meantime, the Government express their satisfaction with the stated determination of the FA to pursue with all vigour England's 2006 World Cup bid, which is fully supported by the Government."
David Mellor, head of the Government's Football Task Force, has called for a radical overhaul of the game's administration following Kelly's resignation. Mellor believes Wiseman should also go.
"On a personal level I'm very sorry about this," he said. "I like Graham Kelly and he worked hard to make the existing structure of football administration work well in this country.
"But what has happened today, plus all the other problems that have either been mishandled or not handled by the FA, must surely make everyone who cares about the game aware that there will have to be a massive shake- up in the way football is administered.
"We can't go on like this, and it will obviously be part of the remit of the Task Force to discuss the issue as to whether or not an independent regulator for football is needed.
"What seems to me to be clear is that finding a replacement for Graham Kelly and one must presume Keith Wiseman, since his position is surely untenable, is merely papering over the cracks.
"There is no alternative to fundamental change. What is needed is a proper administration for football that is appropriate to a modern high-profile financially driven game.
"I think it's not only Keith Wiseman and Graham Kelly who will end up going, and some of the elderly gentlemen in the blue blazers also need to consider their positions. The case for change is irresistible."
The Professional Footballers' Association chief executive, Gordon Taylor, expressed his sadness and shock at last night's events.
And Taylor added that he hoped the shockwaves would not be too severe for England's reputation in world football.
"I am obviously shocked at the news. I have known Graham Kelly for two decades, dealt successfully and as far as I was concerned, he put things by the book.
"But it appears as though in trying to win greater influence for England at Fifa level, particularly with England's World Cup bid, a mark has been overstepped.
"I just hope that the ramifications of these events for English football are not too negative in world football. I would imagine this will send a few shockwaves throughout the world."
Sir Tom Finney, the former England international and one of the most famous names in football, said: "It is a big shock. I have met Keith Wiseman a few times and I have been quite impressed by him. It is a very sad day for English football."Reuse content