Spanish prime minister Mariano Rajoy today strongly denied allegations in the media that he and other leaders of his centre-right People's Party had for years received payments out of a secret slush fund.

"I need only two words: it's false," Mr Rajoy said in a televised address after an extraordinary meeting of party leaders to discuss the allegations.

Mr Rajoy welcomed a full investigation into the affair and said that the party would be fully transparent and that he would publish on the internet all of his tax declarations to clear up the scandal.

Last week El Pais newspaper published extracts from what it said were ledgers maintained by party treasurers to register cash contributions from business leaders that were then distributed to party leaders.

"It is not true that we (in this party) received cash that we hid from tax officials," he said in the brief speech. He did not take questions from the media.

Dozens of police in riot gear guarded PP headquarters in central Madrid today, cutting off neighbouring streets. A small gathering of demonstrators shouted "resign" outside the building after several hundred people protested there on Thursday and last night.

The growing scandal over alleged cash payments to People's Party leaders from a slush fund fed by construction industry executives has damaged Mr Rajoy's credibility during a profound economic crisis in Spain.

Both right-leaning El Mundo newspaper and left-leaning El Pais have reported details of the scandal, citing sources within the PP and copies of the alleged secret accounts kept by party treasurers.

Mr Rajoy, 57, has asked Spaniards for sacrifices as he slashes spending to trim a dangerously high public deficit that last year threatened to bankrupt the state and force him to seek a humiliating international bailout.

His popularity has plummeted during his 13 months in office as his austerity measures aggravate a deep recession and 26 per cent unemployment.

The PP has an absolute majority in Parliament and so far the party has not shown signs of a split that would allow opponents to carry a vote of no confidence.

The PP has already said it will commission an external audit of its accounts.

The anti-corruption prosecutor's office said yesterday it is investigating the alleged payments. If the prosecutor finds evidence of a crime he will make a report to Spain's High Court, which will then decide whether it opens a judicial investigation, the first step to a possible criminal trial.

Reuters