Paul Martin has sought to distance himself from the scandal

A public inquiry is looking into allegations of corruption involving the Liberal government in the late 1990s.

An opinion poll has indicated a huge drop in support for the Liberal Party following fresh allegations.

Speculation is increasing in the Canadian media that the opposition might force an early election.

Mr Martin's comments came in his first media appearance since particularly explosive allegations were released late last week, after a reporting ban was lifted.

In testimony to the inquiry, Jean Brault, the owner of the Groupaction advertising agency at the centre of the scandal, said illegal campaign contributions were channelled back to the Liberal party through an intricate system of false invoices.

In return, he said, he was promised lucrative government contracts.

Voter reaction

Mr Martin said the testimony had offended him as it had offended other Canadians, reminding reporters that he was the one who set up the inquiry shortly after becoming prime minister last year.

"Not only do I have the moral authority to govern, I have the moral authority to act, and that is what I have done," he said.

On Monday, a public opinion poll for the Toronto Star newspaper indicated that just 25% of Canadians say they would vote for the Liberals, whereas 36% of respondents backed the opposition Conservatives.

The events took place during Jean Chretien's leadership

The margin of error was estimated at 2.9%.

The opposition parties have all said they will gauge voter anger before trying to bring down the minority government and force an election.

Mr Martin was finance minister when the alleged corruption took place, under the premiership of Jean Chretien.

A report last year found that the government had systematically funnelled up to C$100m ($81m) from a government programme to a select group of Liberal-friendly companies, for little or no work.

The money was designed to help promote Canadian unity in Quebec, following a 1995 referendum in which the primarily French-speaking province voted by only the thinnest of margins to stay in Canada.