Washington  - Thomas Daschle on Tuesday withdrew his name from consideration as President Barack Obama's health secretary amid a tax scandal, dealing a significant blow to the new administration's efforts to reform health care in the United States.

Obama in a statement said he accepted Daschle's withdrawal with "sadness and regret." As late as Monday Obama had said he "absolutely" supported Daschle's nomination.

Daschle apologized Monday for his failure to pay more than 100,000 dollars in taxes related to his use of a chauffeur and private car. He called it an innocent mistake and has since paid the taxes.

But the scandal had eroded support for his nomination in Congress, and Daschle in a statement said he "will not be a distraction" to the incoming president's agenda.

Daschle, a former South Dakota senator and 10-year leader of Senate Democrats in the chamber, is a close friend of Obama's who co- chaired his successful 2008 presidential campaign.

Daschle was nominated to lead Obama's effort to reform the US healthcare system as secretary of health and human services, as well as to head a new White House office on health.

Daschle becomes the second cabinet-level nominee to withdraw. New Mexico Governor Bill Richardson dropped out of consideration as commerce secretary last month over an investigation into allegations of politicized state government contracting practices.

Nancy Killefer, Obama's choice for a new post of Chief Performance Officer to help streamline the federal budget, also withdrew her name from consideration Tuesday over her own failure to pay unemployment taxes.

White House spokesman Robert Gibbs said the controversies over Daschle and Killefer would have undermined Obama's efforts to set a high standard for ethics in his administration.

"You can't set an example of responsibility but set a different standard in who serves," Gibbs said of Daschle's withdrawal.

But the White House stood behind Treasury Secretary Timothy Geithner, who was forced to apologize over his failure to pay 34,000 dollars in taxes related to his work with the International Monetary Fund. Geithner was confirmed last week in spite of his tax problems, but with little Republican support.

Daschle held a closed-door meeting with the Senate Finance Committee on Monday. Republicans had expressed concern over the tax issue, though none specifically called for Daschle's withdrawal.

Daschle also came under fire for accepting more than 200,000 dollars to speak before health companies in the past few years, which some politicians criticized as a conflict of interest.

"Senator Daschle was going to face some tough questions" at a confirmation hearing that was set for next week, Republican Senator John Ensign told reporters.

But most Democrats had continued to support his nomination and some expressed regret over his decision to withdraw. Massachusetts Senator John Kerry said "today is not a good day for the cause of healthcare reform."

Daschle said the controversy would have prevented him from leading the administration's efforts to reach a compromise on health reform, one of the most intractable issues in US politics.

The US healthcare system is one of the world's most expensive. Health spending accounted for 17 per cent of US economic output in 2008, according to the National Coalition on Health Care.

Reforming that system "will require a leader who can operate with the full faith of Congress and the American people," Daschle said. "Right now I am not that leader."

Gibbs would not offer a timetable for announcing a new nominee, but said the administration's efforts to lower health costs in the US "won't stop" as a result of Daschle's withdrawal. dpa