By Omer Farooq BBC reporter in Hyderabad

The Indian government has stopped food aid to the southern state of Andhra Pradesh following allegations of corruption in the supply of rice intended for poor farmers and agricultural labourers.

The move follows opposition demands for an inquiry into allegations that the ruling Telugu Desam Party (TDP) had misappropriated the aid.

The state government has denied that any of its members was involved, but the Chief Minister Chandrababu Naidu set up an enquiry to investigate the scandal on Thursday night.

Observers say the issue is proving to be a major embarrassment for Mr Naidu, whose party is a key ally of the central government.

Massive food aid from Delhi had been flowing into Andhra Pradesh since August last year following a major drought in the state.

Food-for-work

The aid, supplied under the food-for-work scheme, was meant to help nearly 10 million agricultural labourers who had been hardest hit by the drought.

The labourers were to be given rice as wages for working on various development projects.

Opposition says aid did not reach the poor

Chief Minister Chandra Babu Naidu was able to ensure that Andhra Pradesh got as much as 3.1 million tons of rice (worth 30bn rupees $62.5m) in less than a year.

Declaring the scheme a big success, Mr Naidu has said that more than half a million public projects were taken up in 60,000 villages.

But the main opposition Congress and Communist parties have described it as a big scandal.

In a memorandum to the state governor, the opposition leader in the state assembly Y S Rajshekhar Reddy said that almost 60% of the rice had been misused by ruling party leaders, legislators and ministers.

Allegations

The opposition alleges that the rice provided by Delhi was sold back to an agency of the federal government, the Food Corporation of India, as a locally-grown product.

There have been several cases of the state authorities seizing consignments of rice being diverted illegally.

But Mr Naidu has strongly rejected the charges of corruption against members of his government.

He brushed aside the demand for a federal inquiry, but ordered a senior state government official to investigate the charges.

The Chief Minister pointed out that state agencies were taking action against those involved in irregularities.

He said that more than 350 government officials and representatives elected at village level have been suspended on charges of misappropriating rice.