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By Fransiska Nangoy

JAKARTA, Dec 16 (Reuters) - Indonesia's parliament speaker resigned on Wednesday amid a major scandal in which he is accused of trying to extort shares worth $1.8 billion from an international mining company to ensure its contract extension.

Speaker Setya Novanto has denied the allegations, including that he used President Joko Widodo's name in his dealings with executives from the local unit of Freeport McMoran Inc, one of the world's biggest copper and gold mining companies.

The case has focused public scrutiny on Indonesia's parliament, which the anti-corruption group Transparency International calls one of the most corrupt institutions in a corrupt country, and could erode investor confidence in Southeast Asia's largest economy.

"To preserve the dignity and honor of Indonesia's house of representatives, and to create public order, I hereby declare my resignation as chairman of the House of Representatives for the period of 2014-2019," Novanto, who plans to remain a deputy, said in a letter to a parliamentary committee.

"This letter is the basis for us to immediately close the hearing because this is in line with the formulation of the verdict that would have been taken by the ethics committee," said Sarifuddin Sudding, a member of the parliamentary ethics committee.

Before the letter was made public, 15 out of 17 committee members had announced their views of Novanto's conduct, with nine saying he was guilty of "moderate ethical violations" and six saying "heavy ethical violations".

Novanto, who did not attend the committee hearing in person, was not immediately available for comment.

The government has sought to distance itself from the controversy, with President Widodo calling on authorities to conduct a transparent investigation into the allegations. The attorney general's office is also looking into the case.

Novanto has faced mounting public pressure to resign from his position after Energy Minister Sudirman Said last month went public with a recording of a conversation between the speaker and the CEO of Freeport Indonesia.

Novanto allegedly told the company executive that, in return for company shares, he could ensure the miner's contract would be extended from 2021 to 2041.

Freeport Indonesia must sell the Indonesian government a greater share of its Grasberg copper and gold mine, one of the world's biggest, under regulations passed last year by the previous administration.

The government already has a 9.36 percent stake in Freeport's Indonesian operations, and is due to take another 10.64 percent stake.

U.S.-based Freeport sought the contract extension to give it legal certainty before investing billions of dollars in the Grasberg mine. (Reporting by Fransiska Nangoy; Writing by Nicholas Owen; Editing by Tom Heneghan)

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