The Kenyan finance minister resigned on Wednesday after being named in a corruption scandal involving millions of pounds allegedly stolen by senior members of the government.

David Mwiraria, a close friend and political ally of President Mwai Kibaki, insisted he is innocent and said he is stepping aside while inquiries take place.

His resignation is the first since allegations of corruption made by the country's former anti-corruption tsar, John Githongo, were published in the Kenyan media last week.

The scandal is a blow to the Kenyan government, which, three years ago, was voted in on the promise that it would tackle sleaze but has been fighting off corruption claims ever since.

Critics fear the flow of aid money, estimated to be about $500-million a year, is fuelling corruption.

The minister is accused of plotting with other politicians, civil servants and businessmen to steal about $700-million from the Treasury through suspect contracts for military or police equipment.

In a statement, Mwiraria (67) said: "In order that my name be cleared and to protect the integrity of the president, the government and our country, I hereby voluntarily step aside. As I step aside, my conscience is clear that I have served the Kenyan people with dedication and honesty and have not been party to any irregularity, criminal or unethical conduct."

He urged Kenyan authorities to carry out a swift investigation.

Githongo's dossier alleges that the government has adopted the corrupt techniques of the regime of the former president, Daniel arap Moi.

Githongo on Wednesday said Mwiraria's resignation "belies his assertion that he has not been party to any irregularity, criminal or unethical conduct". He added: "I want to categorically state that evidence in my possession conclusively proves that Mr Mwiraria was an integral player in the Anglo Leasing and related scams."

The Anglo Leasing scandal, involving about $88-million-worth of contracts for a secure passport computer system and a forensic laboratory, is central to the allegations. The deals were to be financed by a company named Anglo Leasing and Finance.

According to the government's auditor general, the company won the tender against no competition, and appeared to have been tipped off.

Other Cabinet ministers named in the corruption dossier compiled by Githongo, who now lives in Britain, include the Vice-President, Moody Awori; the Energy Minister, Kiraitu Murungi; and former internal security minister Chris Murungaru.

Both the president and the Kenyan Anti-Corruption Commission (KACC), which is tasked with fighting corruption, received a summary of Githongo's dossier in November. But there was little sign of action until last week when it was leaked to the Nairobi press.

A few days before the dossier was passed to the Daily Nation, Kenya's main newspaper, the KACC summoned 30 people for questioning, including the vice-president.

The corruption scandal and the resignation of a close Cabinet ally are the latest blows to an already embattled Kibaki, who suffered a humiliating defeat last year in a referendum on a proposed new Constitution. The referendum defeat was seen as an effective vote of no confidence in the president and his allies.

Kibaki has also been criticised for being slow to respond to the unfolding crisis in northern Kenya, where three million people are in need of food aid because of persistent drought that has turned grazing land to dust.

Opposition leaders are now calling for the named ministers to step aside. Calls have also been made for the president to dissolve the government and call fresh elections.