The bank's decision follows strong opposition to the $400m (£256m) Rosia Montana project, which is planning to build Europe's largest open-pit gold mine in Romania's Apuseni mountains.

Environmental groups raised concerns over the high level of cyanide that would be created, fearing a repeat of the Baia Mine disaster in 2000 which polluted the Tisza and Danube rivers.

There has also been criticism of the project's sponsor, Gabriel Resources, which has no previous mining experience but nonetheless said it will continue with plans to build the mine.

Gold diggers

Gabriel Resources is based in Barbados but listed on the Toronto stock exchange.

It had approached the World Bank's lending arm, the International Finance Corporation (IFC), for financial help in transforming the Rosia Montana valley into four open-pit mines.

The IFC's decision points to the low investment quality and troubled nature of the project

Joszef Feiler, CEE Bankwatch

But the project would displace more than 2000 people and build a 1,000 acre reservoir to collect the cyanide produced through the mining.

Organisations opposed to the plans pointed to the cyanide spill in Romania's Baia Mare pit two years ago, which polluted drinking water for 2.5m people and killed 120 tonnes of fish.

There were also questions raised about Gabriel Resources' chairman, Frank Timis.

No-go?

The IFC said it had "concluded that it is in everybody's best interest that we do not pursue discussions with the company".

Gabriel Resources had reportedly asked the IFC for a $250m (£160m) contribution to its plans and aimed to produce 10 million ounces of gold over 15 years.

The Romanian government supports the plans and had reportedly tried to bar environmentalists from World Bank meetings.

But opposition groups welcomed the IFC's unusual decision.

Joszef Feiler from CEE Bankwatch Network, which monitors the activities of international financial institutions, said: "The IFC's decision points to the low investment quality and troubled nature of the project".

However, Gabriel Resources reportedly said it would continue with its plans, and had approached the IFC only for environmental, not financial, help.