Canadian Prime Minister Justin Trudeau has refused to stand down over claims he interfered to help a construction firm that allegedly bribed Muanmar Gadaffi's regime to avoid a corruption trial.

The political scandal gripping Mr Trudeau's Liberal Party began when his former justice minister claimed on Wednesday that she had been pressured to drop the prosecution of SNC-Lavin, a construction firm in the prime minister's home province.

In her testimony, justice minister Jody WIlson-Raybould claimed she endured a "sustained" pressure to abandon a prosecution of the construction giant by Mr Trudeau's staff.

It is the first time the Prime Minister has been implicated in the scandal and the claims threaten to inflict significant political damage on the Liberals just months ahead of what polls suggest will be a hard-fought election.

Mr Trudeau on Thursday said he disagreed with Ms Wilson-Raybould's "characterisation" of events and insisted he had full confidence in an inquiry into the affair.