Edna Arbel (the chief prosecutor) "has today issued" the recommendation to Attorney General Meni Mazuz, spokesman Jacob Galanti said.
He would not confirm whether Arbel had recommended that Mazuz prosecute Sharon on charges of accepting bribes from contractor David Appel.
Sharon's office also refused to comment on the development but one of his lawyers, Avigdor Klasberg, earlier accused the prosecutor general's office of "deliberately leaking" the news she was recommending a prosecution in a bid to increase the pressure on Mazuz.
The recommendation comes two months after Appel was indicted on charges of trying to bribe Sharon when he was foreign minister, through his son Gilad, in exchange for their help in securing a major Greek property deal.
One of Sharon's own cabinet ministers said that the premier should resign if he is formally charged, a decision which legal experts said could take weeks.
"Under such circumstances, the prime minister should resign," National Infrastructure Minister Yosef Paritzky told public radio.
"If he is charged, the prime minister should submit his resignation and not merely suspend his activities," said Paritzky, who is a member of the centrist Shinui party, the second largest faction in Israel's governing coalition.
The prime minister would not be in a position to run the country as he needs to "devote himself entirely to his defence", added the minister.
Most ministers refused to comment on the affair, but Tourism Minister Benny Elon, of the far right National Union party, praised Arbel's "courage".
Elon's party is vehemently opposed to Sharon's plans to evacuate most of the Jewish settlements in the Gaza Strip and other opponents of his plans have accused Sharon of pushing his proposals in order to divert attention away from the corruption scandal.
Jewish settlers in Gaza are to be
Sharon himself is expected in Washington on 14 April for talks with Bush in a bid to secure support for what he has dubbed his "disengagement plan".
Under the terms of his project, Israel is likely to evacuate all but a handful of Gaza settlements and a small number in the northern West Bank in return for strengthening control over others in the West Bank.
The Bush administration has so far withheld its backing but a senior aide to Sharon expressed confidence that it would be won.
"There's a very good chance of coming to an agreement in Washington and contrary to the views expressed in the press the Americans have a positive view about the disengagement plan," he told AFP on condition of anonymity.
However, Ron Nahman, mayor of the large West Bank settlement of Ariel and an influential voice in the settlement movement, slammed the Gaza pullout.
Al-Rantisi says the US and Israel
announced a 'war against Allah'
"The plan to retreat from Gaza removes the legitimacy bestowed upon communities which have been created by all Israeli governments," he said.
Sharon appears determined to push ahead with the Gaza pullout despite stirring up a hornet's nest by ordering last Monday's assassination of Shaikh Ahmad Yasin, the spiritual leader of the resistance movement, Hamas.
Enemies of Islam
Abd al-Aziz al-Rantisi, Yasin's successor as Hamas leader in the occupied territories, told supporters at a rally in Gaza that Bush and Sharon were enemies of the entire Muslim world.
"Bush is an enemy of God, an enemy of Islam, an enemy of Muslims," said al-Rantisi in his first appearance in public since the end of a three-day official mourning period for Yasin.
"America has announced a war against Allah, Sharon has announced a war against Allah. Allah announces a war against America, Bush and Sharon," he told a crowd of more than 5000 who had gathered at Gaza City's Islamic University.