ECB staff also raised their growth forecasts for this year and next but ECB President Jean-Claude Trichet said while recent economic data had been stronger than expected, recovery would occur at a moderate pace with uncertainty still prevailing.
The ECB extended its commitment to provide unlimited one-week and one-month funding until at least January 18. It will also offer unlimited funds at its three-month tenders until at least the end of this year.
All 78 economists in a Reuters poll predicted the ECB would leave rates at 1 percent for the 16th month in a row and the median expectation is for no change until the fourth quarter of 2011.
Analysts also expected the ECB's 22-member Governing Council to maintain the liquidity lifeline relied on by banks in countries like Spain, Ireland and Greece.
Borrowing from the ECB by banks in these countries has hit record highs in recent months even though total lending has fallen about a third since July, highlighting the difficulties still faced by some institutions.
Bond yield spreads for peripheral government bonds over German Bunds have jumped amid growing evidence of a split between core euro countries and debt-ridden laggards.
Germany grew at its fastest rate since reunification in the second quarter and more than twice as fast as the euro zone average, confirmed at 1.0 percent on Thursday.
Greece is still in recession and Portugal and Spain managed just a tenth of Germany's growth rate.
Recent economic data for the euro area have been stronger than expected, partly owing to temporary factors, Trichet told a news conference. Looking ahead, the recovery should proceed at a moderate pace with uncertainty still prevailing.
Nonetheless, ECB staff upgraded growth forecasts for both 2010 and 2011.
Trichet said staff now saw growth in a range of 1.4 to 1.8 percent this year -- giving a midpoint of 1.6 percent -- from the 0.7 to 1.3 percent seen in June.
Next year, growth is expected to pick up to between 0.5 and 2.3 percent, from 0.2-2.2 percent in June.
The ECB's quarterly forecasts also showed inflation under control this year and next, with consumer price gains expected to be 1.5-1.7 percent in 2010 and 1.2-2.2 percent in 2011.
The range for real GDP growth this year has been revised upwards owing to the stronger-than-expected rebound in economic growth in the second quarter, as well as better-than-expected developments over the summer months, Trichet said.
For 2011, the range has also been revised upwards reflecting mainly carryover effects from the projected stronger growth towards the end of 2010, he said.
Euro zone inflation moderated to 1.6 percent last month but there are some signs of pressure, notably Germany's powerful steelworkers union demanding a 6 percent pay rise.
Expectations of continued ECB liquidity largesse have pushed market interest rates down from 12-month highs over the last month, although pressure points remain.
Turnover in overnight money markets fell back in August after doubling in July to more than 1 trillion euros and many banks still prefer to deposit excess funds back at the ECB rather than lending them on to counterparts.
Banks also face a liquidity cliff at the end of September when they must repay a total of 225 billion euros in 12-, six- and three-month funds or roll it into shorter maturities.
The ECB is not alone in dragging its feet towards the exit. Although Sweden's Riksbank hiked rates on Thursday to 0.75 percent, it cited weak growth in the euro zone and United States as a risk to the outlook. The Bank of Japan has boosted its cheap loan scheme and the U.S. Federal Reserve took steps towards further stimulus by reinvesting maturing mortgage-related securities.
(Editing by Mike Peacock)