German's foreign office told AFP that Bernd Erbel, 71, had informed it "that he is not available for personal reasons".

Germany's top-selling newspaper Bild said Erbel's appointment was halted after it reported on controversial comments the ex-ambassador to Baghdad and Tehran had made in recent interviews.

Bild slammed "two scandalous appearances" in which Erbel had given long interviews to former public radio journalist Ken Jebsen, whom the tabloid-style paper accused of being "a conspiracy theorist and anti-Semite".

Erbel had said that Israel represents "a foreign body in the region" and had been founded "at the expense of another people that lost their homeland".

He also said, according to the Bild article, that "the Palestinians are the victims of our victims. Quite simple".

Bild also charged that Erbel had broadly shown a pro-Iran attitude and played down, for example, militancy by the Iranian Revolutionary Guards and their allies in the region.

The newspaper said in a rare English-language article on its website that "after Bild contacted Erbel regarding dubious interviews he had granted previously, he was forced to resign".

Germany, Britain and France in January founded the Instrument in Support of Trade Exchanges to facilitate barter trade with Iran to get around US sanctions that block financial transfers.

However, INSTEX is not yet operational.

Berlin remains in talks with London and Paris on filling the post of INSTEX managing director, which needs confirmation from the institution's supervisory board.