Israeli Prime Minister Ehud Olmert, who is suspected of taking bribes from a US businessmen, is involved in a case that threatens to shake up the political landscape as Israel marks its 60th birthday.

The justice ministry said a probe had been launched into suspicions that Mr Olmert unlawfully received payments from a foreign businessman based in Israel during his time as mayor of Jerusalem and as industry minister.

The announcement followed the lifting of a comprehensive blackout imposed by the judiciary in the case, the fifth such investigation into the dealings of Mr Olmert before he became prime minister in 2006.

Mr Olmert, 62, denied the allegations against him but said he would resign if he is charged.

Anti-fraud investigators questioned Mr Olmert for an hour overnight at his official residence in Jerusalem.

Mr Olmert has insisted he will continue his duties as premier, but in a rare step he has cancelled all interviews he traditionally grants local media ahead of Israel's anniversary celebrations.

He hit back at what he called a "hysterical" campaign against him.