But the decision provoked anger among regional business leaders, who said the process to find a successor had been 'a waste of time' and `a farce' and would necessitate a completely fresh search for Mr Gray's replacement.
Every candidate who applied this year will have to reapply, with a new chairman now due to take up the post at the end of 2009.
Business Secretary Lord Mandelson said seven regional development agency chairs would have their appointments extended by up to a year. He said: "RDAs have a key role to play in helping businesses through these tough times. At this critical time for the economy, I want to see continuity at the top of the RDAs."
Stability
Mr Gray said: "I have agreed with government to extend my term as NWDA chairman. Stability is key during this economic downturn, and the agency is working hard with our partners to support businesses during this time.
"I am pleased to extend my tenure to see this support put in place and to witness the continued progress of key projects, including the new regional strategy."
The process to find a successor to Mr Gray began last January. An announcement was expected by July, with a view to a changeover in mid-December.
However, it is understood this was postponed to coincide with similar appointments at two other regional development agencies, believed to be the south west and west midlands.
Candidates on the north west shortlist are thought to have included Felicity Goodey, chairman of Salford Quays' MediaCity development, Peel Holdings executive Robert Hough, retired corporate banker John McGuire and Manchester Airports Group chief executive Geoff Muirhead.
One business leader in the region said today: "The people they want for this role are busy people, and I would imagine that taking time out to go through the process, to find it's been a complete waste of time, will not go down too well.
"They will now have to go through the whole rigmarole again, but I don't think the people interviewed this time will hang around for another year, just in case.
"There will be other difficulties by then - we could be close to a general election, with the main opposition parties saying they don't like RDAs. Who would want to start a role that could last a few weeks?"
Frustration
Another said: "There will be huge frustration at what has turned out to be a complete and utter farce."
Another business leader said: "I don't understand why the north west could not have been allowed to go ahead and make its own appointment."
England's regional development agencies are business-led organisations, launched in 1999, to stimulate regional economies to reach their full potential by promoting economic development, enterprise and regeneration.
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