British artist Ofili uses elephant dung in his paintings

The Tate did not tell the fund it had already committed itself to purchasing The Upper Room by Chris Ofili when it made its application in November 2004.

Last month Tate director Sir Nicholas Serota wrote a letter to the body offering to repay its �75,000 grant.

However, the fund's board of trustees decided the grant should stand.

The fund does not usually offer money for artworks which a gallery has already made a commitment to buy.

"The board acknowledged it was a genuine mistake," said a spokeswoman for the organisation.

'Important'

Ofili's work, on display at Tate Britain until May 2006, comprises 13 paintings of rhesus monkeys displayed on elephant dung supports.

The Tate contributed �120,000 towards the �600,000 purchase price, raising the outstanding amount through donations.

The Upper Room comprises 13 paintings of rhesus monkeys

According to the Tate, Mr Ofili had no say in the decision to buy his work - described by the Daily Telegraph's art critic Richard Dorment as "one of the most important works of British art painted in the last 25 years".

"He exempted himself from all the meetings," said a gallery spokeswoman.

The National Art Collection Fund has also denied any conflict of interest involving its chairman David Verey, a former Tate chairman and trustee.

A spokeswoman for the fund told the BBC News website that Mr Verey did not attend any meeting at which Ofili's work was discussed.