JAKARTA (Reuters) - Indonesia's Parliament voted to allow MPs use of nearly a billion dollars in state funds to develop their constituencies, which a minister said on Wednesday would only encourage more graft in one of the world's most corrupt countries.

At the same time, the house pressed ahead with debating a Bill that would further weaken the country's anti-corruption agency.

Indonesia consistently ranks among the most corrupt countries in the world, according to Transparency International, which also rates its Parliament, the house of representatives, as one of its most corrupt public institutions.

The moves late on Tuesday deal another blow to President Joko Widodo, who is already under fire for a flagging economy and perceived failure to stand up to vested interests and to protect the Corruption Eradication Commission (KPK). "These funds are prone to corruption because it is difficult to control and oversee how they are spent in the regions," Home Affairs Minister Tjahjo Kumolo told reporters.

Parliament this week also moved to prioritise a proposed Bill that would take away from the KPK one of the key weapons in its limited arsenal - wiretapping graft suspects without a warrant.

Critics say the legislation will cripple the agency, which has already been severely weakened by attacks from the police, the Attorney-General's Office, the Vice-President and members of Mr Joko's own political party.

Members of Parliament have tried in previous terms to limit the agency's powers but have failed due to public opposition.

Mr Joko's coalition controls only 37 per cent of seats in Parliament, and by law the president does not hold veto power over Parliament.