The best possible seasonal gift

UN Secretary-General Kofi Annan

Objections from South Korea, which had been holding up the deal, were overcome after late-night telephone talks with the government in Seoul, and the UN General Assembly later voted to approve the package.

Under the new funding system, 19 countries will pay more into the UN coffers, allowing US contributions to be reduced for the first time in decades.

In return, the US Congress is expected to release about $1.5 billion which the UN says Washington owes in arrears.

Annan: Normal relations can now be resumed

As part of the deal, a cash payment of $34m has been offered by billionaire media tycoon Ted Turner, founder of CNN.

The settlement is expected to ease simmering tensions between Washington and the UN over the level of payments the US was being asked to make.

The deal was approved first by a General Assembly committee, and then rubber-stamped by a formal General Assembly session.

Albright: Telephone call

"I believe we can report that we have made a huge step forward and perhaps a breakthrough," said US ambassador Richard Holbrooke, as he presented details of the accord to the committee.

South Korea's objections were finally overcome after UN Secretary-General Kofi Annan and US Secretary of State Madeleine Albright made telephone calls to the government in Seoul.

Mr Annan described the settlement as "the best possible seasonal gift" for the UN, which he said should remove a major source of tension.

"In particular, we can now look forward to a normal and constructive relationship with the United States administration," he said in a statement.

The US Congress has been withholding the UN contributions - which American estimates put lower, at $926m - in an effort to persuade the UN to reform its budgeting procedures.

Under the deal, US payments will be cut:

• from 25% to 22% of the $1bn UN administrative budget

• from 30% to 26 or 27% of the $3bn UN peacekeeping budget

Japan's share of the costs has also been cut significantly.

Facts about the UN

The budget for the UN's core functions is $1.25bn a year The US share of the UN's regular budget is the equivalent of $1.11 per American - San Marino pays $4.26 per person The New York headquarters of the UN employs only 4,500 people, while the Swedish capital in Stockholm has 60,000 employees 52,100 people work for the UN. Fast food chain McDonald's employs three times this number

Russia will pay more to help make up the shortfall, along with 18 developing countries including South Korea, Singapore and Brazil.

Two factors are believed to have been instrumental in solving a problem that has dogged US-UN relations for most of the last decade - the UN's end-of-the-year deadline, and the imminent inauguration of US President-elect Bush, who wants the issue out of the way.

But the reduction in US contributions left other countries to make up the shortfall - and many objected.

Nations such as South Korea, Brazil, Chile, Iran, the Czech Republic, Poland and Thailand will be allowed to stagger their respective increases over three years.