By Steve Kingstone BBC correspondent in Sao Paulo

Mr Candiota (left, with Mr Meirelles) denies the allegations

Luiz Candiota said he was stepping down to protect the bank's reputation, although he denied the allegations.

A magazine article had accused him of tax evasion, saying he transferred money through an account in New York without telling Brazilian authorities.

Prosecutors are still investigating the affairs of the bank's governor, Henrique Meirelles.

Luiz Candiota, director of the central bank's monetary policy committee that sets Brazil's interest rates, strongly denies any wrongdoing and prosecutors say he is not under investigation.

However, he fell on his sword on Wednesday, saying he was resigning to protect the bank.

Resignation calls

Under normal circumstances, such a departure would probably draw a line under the affair - but not here.

That is because federal prosecutors are investigating the tax affairs of the bank's governor, Henrique Meirelles.

The same magazine article alleged that, in 2001, he misled the authorities about where he was living, while working for a US-based banking group.

Mr Meirelles says there is no irregularity and that he has no intention of resigning.

At least two influential Brazilian newspapers have called for him to go.