The loan has alarmed Tibetan supporters because part of it will be used to resettle farmers on land traditionally inhabited by Tibetan nomads.
China argues it is an important project intended to alleviate poverty.
The loan will enable the authorities to fund the transfer of 58,000 Han Chinese farmers from an over-populated area of Qinghai province to an area further west, historically inhabited by Tibetan nomads. In a concession to the US, the Bank imposed a temporary freeze on the resettlement money until a panel reviews whether the decision violates the Bank's own rules. Dalai Lama's birthplace Western Qinghai is not actually part of Tibet, but was the birthplace of the Dalai Lama. The United States and Germany both voted against the proposed loan and a further four of the board's 24 members abstained, World Bank sources said. The World Bank typically approves projects via a consensus and the approval of a project in the face of US objection is a first for the organisation.