KUALA LUMPUR (BLOOMBERG) - Malaysia will dissolve the advisory board of a state-owned investment company headed by Prime Minister Najib Razak as the government accepts the resignation of the board amid global investigations into allegations of money laundering and embezzlement.

The Minister of Finance Inc., the shareholder of 1Malaysia Development Bhd. or 1MDB, has accepted the resignation of the board of directors with effect from May 31, according to an e- mailed statement from the Finance Ministry on Wednesday (May 4). Arul Kanda will remain as the company's president until further notice, the ministry said.

The decision came as the government's reputation took another hit last week after 1MDB defaulted on a US$1.75 billion (S$2.4 billion) bond. The development fund withheld a US$50 million coupon payment amid a wider dispute with Abu Dhabi's International Petroleum Investment Co.or IPIC, the co-guarantor of the bonds, and the missed payment triggered cross defaults on 7.4 billion ringgit of 1MDB debt.

Kanda "will continue to focus on his specific mandate to implement the rationalization plan, which will include resolution of the recent contractual dispute with IPIC," the Ministry of Finance said, adding it will "will appoint new board members to reflect the limited business profile of 1MDB." The prime minister and 1MDB have denied any wrongdoing.