By Clinton Porteous In Santiago

The crisis began in February after the banker's personal secretary, Pamela Andrada, was arrested for selling market sensitive information to an investment bank .

The investigation into the leak also uncovered the theft and transfer of $100m in deposit certificates to the investment bank from another government agency.

The investment bank is now under administration but the scandal strikes at the heart of the Chilean financial system.

Victim

It has also claimed its biggest scalp to date.

Carlos Massad was due to stay at his post for another four years but offered his resignation in a private meeting with Chilean President Ricardo Lagos.

A government spokesman said Mr Lagos had accepted the resignation while Finance Minister Nicolas Eyzaguirre said the banker had been the victim of a scandal in which he had had zero involvement.

"He leaves the Central Bank on stupendous footing. Proof of that is that inflation has always been on target. Markets not only believe inflation today will be low but they also believe it will be low in the years to come," said Mr Eyzaguirre.

Mr Massad has promised a new system of checks and balances that he says will ensure sensitive information will not leak again from the Central Bank.

But in many ways the damage has already been done.

Chile has the image as the least corrupt and safest financial centre in Latin America but that reputation is now being undermined.

Financial analysts will be watching closely to see if the Chilean peso drops in value in response to the resignation.