The president’s surprise request – which came as Argentina prepares a bond swap designed to reopen access to international capital markets eight years after its $100bn (€69bn, £62.5bn) default – was delivered by her cabinet chief Aníbal Fernández on Wednesday morning.

“(Mr Redrado) replied that he would not quit. If the government wants to remove him, it has to apply the appropriate mechanism,” a central bank spokesman said. According to the bank’s charter, that means a decision by Congress.

However, both Mr Fernández and economy minister Amado Boudou said Mr Redrado, whose term ends in September, had previously offered to tender his resignation whenever the president required it.

“Mr Redrado has fulfilled a function and today this function has ended,” Mr Boudou told a news conference. He confirmed that the president wanted Mario Blejer, who was central bank president in 2002 and also served as director of the Centre for Central Banking Studies at the Bank of England, to take over.

Mr Blejer was out of the country and could not immediately be reached for comment. However, El Cronista Comercial newspaper quoted him as saying that while Mr Redrado remained as president “that bars me from considering the offer”.

The row over the use of reserves erupted after the president in December signed a decree ordering the transfer of $6.5bn from central bank reserves to a new fund, the bicentennial fund for stability and reduced indebtedness, as a way to service some debt and free up cash for other spending.

The government says this will enable Argentina to meet its debt obligations more cheaply than borrowing internationally.

Mr Fernández noted that the central bank now had more than $48bn in reserves compared with some $8bn in 2003, when Néstor Kirchner, the president’s husband and predecessor, took office, and said that was thanks to the government’s policies.

Mr Redrado, however, sought legal counsel, fearing that the use of reserves would open the door to embargoes of central bank funds by the holders of defaulted Argentine bonds who are suing for repayment. Argentina crashed into the world’s biggest sovereign default in 2001 and has been barred from capital markets ever since amid legal action from the holders of defaulted bonds.

Ricardo Delgado, an economist, said the move to oust Mr Redrado not only undermined the independence of the central bank but also suggested the government “needs to lay its hands on any coffers it can”. In 2008, Ms Fernández nationalised pension funds in what was widely seen as an asset grab.

Bonds and stocks weakened on the news, but analysts did not expect  Argentina’s latest political crisis to derail the upcoming defaulted debt swap, which the government would like to launch at the end of the month.

Nevertheless, economist Manuel Solanet said: “This will affect confidence in Argentina and the perception that the government can meet its payments in 2010.”

Economist Luis Secco noted that Mr Redrado had not opposed oppose the use of reserves to repay Argentina’s outstanding debt to the IMF four years ago and said his tenure at the central bank had been “marked by the alignment of the central bank to the general government economic policies . . . in which maximizing growth was always above the objective of containing inflation”.

“It’s interesting he’s resisting. That shows the Kirchners are not perceived as being as strong as in the past,” said one economist who asked not to be named, adding he expected Mr Redrado to fight to the end.

Some bank workers demonstrated outside the bank calling for him to keep his job, while a small group handed out leaflets saying “Redrado out”.

Mr Redrado is likely to face suffocating government pressure if he fails to give in. Ms Fernández has cold-shouldered her vicepresident, Julio Cobos, ever since he cast the deciding vote in a vote in Congress in July 2008 that buried her plan to levy variable tariffs on farm exports.

But Alfredo Bernal at Bulltick Capital Markets said: “We expect Martin Redrado to wait for a Congressional commission to decide his future.”

If that happens, it will be up to Mr Cobos as president of the Senate, with the heads of the budget, economy and finance commissions of Congress to reach a decision.