Israel's main government watchdog, the state comptroller's office, first investigated the complaint and gave its findings to Menachem Mazuz, the attorney-general, who order the police inquiry.

'Needless investigation'

"This is a needless investigation," a statement issued by the Prime Minister's office said.

"We are sure and completely certain that the process of purchasing the Olmert family apartment on Cremieux Streets was innocent and correct."

"We are sure and completely certain that the process of purchasing the Olmert family apartment on Cremieux Streets was innocent and correct"

Prime minister's office statement
The statement said the price the prime minister paid for the home was in line with real estate market conditions at the time.

"The prime minister will co-operate fully with the investigation in order to bring it to as swift a conclusion as possible."

The case is the latest of several corruption inquiries Olmert has faced since he took office last year.

Police are already investigating Olmert's role, as finance minister, in the privatisation of Bank Leumi, Israel's second biggest commercial bank, in 2005.
   
Suspicions in that case focus on whether Olmert tried to tailor the sale offer to give preference to a friend, who ultimately never bid on the bank.

Olmert has denied any wrongdoing and he is expected to be questioned by police soon.

Mazuz is also considering whether to instruct police to investigate whether Olmert, as industry and trade minister in 2003, appointed acquaintances to a government-funded business authority and helped secure official funding for a factory represented by his former law partner.

Israel's leadership has been damaged by a series of corruption and other scandals over the past year, which have contributed the failing approval ratings of Olmert and his governing coalition.
  
Moshe Katsav, the former president, was involved in a sex scandal and Avraham Hirshson, the finance minister who has since resigned, was investigated over corruption allegations.