The reported margin of victory in Virginia is small enough for a recount to be possible, but with 99% of votes now counted, it was thought to be virtually impossible for Mr Allen to make up sufficient ground to win.

Though Mr Allen may be entitled to demand a recount, aides were quoted as saying that he did not want to drag out the process and was likely to make a decision in the coming hours.

President Bush said that he and Mr Rumsfeld had agreed that a “fresh perspective” was needed in Iraq. Mr Rumsfeld had faced growing calls to quit as violence in Iraq has continued to spiral, three years after the US-led invasion.

“It’s been quite a time,” said Mr Rumsfeld in a short departing speech. Nancy Pelosi, the woman set to become the speaker of the House of Representatives, welcomed the resignation.

“I hope the departure of Mr Rumsfeld will mark a fresh start toward a new policy in Iraq, signalling a willingness on the part of the president to work with the Congress to devise a better way forward,” she added.

IRAQ

<B>Corruption “costs billions”</B>

■ Corruption within the Iraqi government is costing the country billions of dollars, the US official monitoring reconstruction in Iraq has said, as the country faces a second insurgency of corruption and mismanagement.

He said Iraqi government corruption could amount to $4bn (£2.1bn) a year, over 10% of the national income, with some money going to the insurgency. Many government workers also lack the skills to manage funds, Mr Bowen said.

“This money that’s stolen doesn’t merely enrich criminals,”Mr Bowen said. “(It) frequently goes out to fund criminal militias or insurgents. That means lost lives for US troops.”A clause in a military spending bill signed by President George W Bush three weeks ago will terminate the work of the auditor on 1 October next year. Democratic and Republican Senators have said they will fight to have the term of the Office of the Special Inspector-General for Iraq Reconstruction extended. Mr Bowen has been critical in the past of how US money earmarked for reconstruction has been spent. Lack of skills among government workers is another problem hampering reconstruction, Mr Bowen said. “The estimates are that $8-10bn of Iraq's budgets will go unspent because of Iraq’s lack of capacity to spend that money,” he said. Mr Bowen’s audit office began operations in March 2004 and has referred 25 criminal cases to the US Department of Justice. Four have resulted in convictions.

Among its more notable findings was a report on the loss of 14,000 weapons destined for Iraqi government use.

Many of these are believed to have found their way into the hands of insurgent groups after the Pentagon lost track of them.