Olmert said in a televised statement on Thursday that he was the victim of "character assassination" and that the charges were "baseless rumours".

"I have never been offered bribes and I never accepted bribes from anybody in any regard and in any way, directly or indirectly," he said.

Police have not yet questioned Olmert and no charges have been filed against him. They would not comment on when he may be questioned, although media reports suggest this will happen within coming days.

Testimony

Media reports also state that police have a state witness to testify against Olmert.

Another six other people suspected of bribing officials to allow construction to take place have previously been arrested. This included Uri Lupolianski, Olmert's successor as mayor of Jerusalem, and Uri Messer, Olmert's former associate, although no one has been charged.

The case has been billed as Israel's "real estate scandal of the century" in the local media. Olmert's picture had previously been placed next to the story in newspapers, although the gag order prevented the "public figure" allegedly involved from being named.

Al Jazeera's Jacky Rowland, in Jerusalem, said: "An investigating judge called it one of the worst corruption cases in the history of Israel.

"Police suspect that he benefitted from backhanders to change planning laws. Olmert is expected to speak later."

Olmert was already facing three different charges of corruption.

He was forced to step down as prime minister last year after police accused him of double and triple-billing Jewish organisations for trips abroad and taking the extra money.

However, police have said that the new charges are much bigger then those previously filed against him.