ROME - A high-profile corruption scandal involving Silvio Berlusconi's inner circle is denting the Italian prime minister's hopes of a sweeping victory in regional elections next month.

For the past week, magistrates probing lucrative public work contracts have closed in on Guido Bertolaso, the head of the civil protection department and Berlusconi's right-hand man in dealing with natural disasters.

On Monday, they questioned the national coordinator of Berlusconi's People of Freedom (PDL) party, Denis Verdini, who later revealed he was also under investigation.

Berlusconi, who is himself on trial for corruption and tax fraud in separate court cases, initially dismissed the probe as politically motivated. He leapt to Bertolaso's defense and rejected his offer to resign, saying the magistrates investigating him should be ashamed of themselves.

But after days of leaked phone transcripts alleging that Bertolaso helped a businessman win contracts in return for money and the service of prostitutes, the scandal is becoming increasingly costly for Berlusconi ahead of the March 28-29 vote -- which is widely seen as a national test of his popularity.

Bertolaso has denied the allegations, saying he received therapeutic massages for back problems and was not involved in any sexual activities at parties magistrates say were held in a Rome health spa.

The situation risks degenerating seriously to the point of swaying the election campaign and the results for the PDL, Italian newspapers quoted an internal party memo as saying on Tuesday.

Even in a country inured to political and corruption scandals, news that Bertolaso -- widely seen as a national hero for his response to last year's deadly earthquake in L'Aquila

-- was being probed came as a shock to many Italians.


The investigation has exposed a web of irregularities, graft and alleged sexual favors surrounding big contracts awarded by the Civil Protection agency, including the original site of last year's Group of Eight summit.

The agency deals mainly with natural disasters and emergencies, but because it is allowed by law to operate with few strings attached, it has increasingly become involved with the organization of major events -- from heads of state summits to international swimming championships.

Hundreds of millions of euros were spent on preparing the site for last July's G8 summit in Sardinia but the meeting was abruptly moved to L'Aquila after the quake in what the government said was a show of solidarity with the victims.

So far, four people have been arrested in the probe but the apparent scale of the corruption is such that the case is drawing parallels with the Bribesville investigation that wiped out an entire generation of politicians in the 1990s.

Bertolaso is Berlusconi's golden boy and has always been regarded as above suspicion. If even he is caught in a scandal, then people will just think that everything is rotten in the country, said Franco Pavoncello, political science professor at John Cabot University in Rome.

It is difficult to quantify how much this will cost the center right in terms of support, but it will certainly have an impact in the elections next month, he said.

An opinion poll published on Tuesday showed Berlusconi's approval rating has slipped in the last month, although it remains strong at 46 percent.

Faith in the opposition Democratic Party inched up to 40 percent but the center left has its own sex scandals and investigations to worry about in key regions like Campania, Emilia Romagna and Lazio.

The opposition at present controls 11 out of the 13 regions coming up for grabs in the elections. Before the civil protection probe, it was expected by most analysts to lose at least five of them.

(Editing by Philip Pullella and Robin Pomeroy)