This is a malicious smear campaign - in the end our opponents will fall flat on their faces

Thomas Goppel, CSU general secretary

The move follows an article in a news magazine, Stern, that alleged the party had illicitly obtained more than $2.5m in state subsidies in the 1990s.

According to the article, the CSU improperly obtained federal matching funds by declaring subscriptions to party publications as donations.

The party has described the allegations as slander by its political enemies.

'Kohl' effect

The CSU said the accusations were an attempt to damage the reputation of the party leader and Premier of Bavaria, Edmund Stoiber.

He is widely tipped as the man who will lead the conservative challenge to Chancellor Gerhard Schroeder in the September general elections.

Kohl paid back 8m marks

"This is a malicious smear campaign. The background is unequivocal, but in the end our opponents will fall flat on their faces," CSU General Secretary Thomas Goppel said.

Mr Stoiber's candidacy depends on the approval of the main conservative party, the Christian Democratic Union, whose leader Angela Merkel reportedly also wants to run.

Neither of them has so far declared their intentions, but the conservatives are expected to name their candidate later this month.

The Christian Democrats are still reeling after former Chancellor Helmut Kohl plunged them into a funding scandal last year.

He admitted taking about $1m in secret party donations.