Councils are to be responsible for the DBRW's social and economic grants. Mr Redwood plans to transfer £2.4 million - the current level of spending - to councils from next year. They will also deliver small business grants, totalling £3m.
Welsh secretary John Redwood ordered a review of the DBRW after the Public Accounts Committee criticised it and the Welsh Development Agency earlier this year for wasting money. The DBRW chairman resigned in May when the board was found to operate a biased housing allocations policy.
Mr Redwood's announcement on the DBRW's future was welcomed by Welsh districts. Mid Wales councils had been opposed to abolition of the board, as they believe an agency with a specific remit for rural Wales continues to be needed.
The DBRW will retain its role in property development and business services, but will work more closely with the Welsh Development Agency. WDA chairman David Rowe-Beddoe will become chairman of the DBRW.
The DBRW board will have two extra council members. 'I wish to see each of the five constituent historic shires represented at the earliest opportunity,' Mr Redwood said.
The Council of Welsh Districts welcomed Mr Redwood's statement. The transfer of grant-making responsibilities to elected authorities 'is precisely what we are seeking across a range of functions in Wales', CWD finance and parliamentary committee chairman Harry Jones said.
Districts were also pleased that development board tenants will be able to choose whether to transfer to the local authority or a housing association when the DBRW stock is transferred in 1996.
'Doubts have been raised about the propriety of ministerial actions in approving certain loan and grant schemes,' Mr Redwood said. 'From the evidence I have seen there is no question of any ministers setting out to break the law.' But he believed it was better for these schemes to be run by councils.
He has also asked the new team at the WDA to launch an inquiry into past land deals by the WDA in the Cynon Valley.
Mr Redwood said he still saw a role for 'non-departmental public bodies' but their role should be more clearly defined, working more with the community. They should not become property landlords, he said. Development boards will have to dispose of all their fully let assets.