JERUSALEM (Reuters) - Israeli Prime Minister Ehud Olmert is suspected of having taken envelopes full of cash from a U.S. businessman, the chief prosecutor said on Monday in his most graphic public account of a corruption case against Olmert.

Israel's Prime Minister Ehud Olmert attends the weekly cabinet meeting in Jerusalem May 18, 2008. REUTERS/Jim Hollander/Pool

Olmert has denied any wrongdoing in the case, which threatens to force him from office and disrupt his U.S.-brokered peace negotiations with the Palestinians.

State Prosecutor Moshe Lador, speaking at a Supreme Court hearing, said investigators suspected New York businessman Morris Talansky had given Olmert “dollars, in cash and in envelopes, during brief meetings from time to time”.

Olmert’s attorneys were petitioning the Supreme Court to reverse a lower court’s decision to hear preliminary testimony from Talansky, currently visiting Israel, before he returns to the United States.

The Supreme Court did not immediately rule on the argument that such testimony, at an early stage of the investigation, would impinge on Olmert’s right to a fair trial by effectively indicting him before any formal charges were brought.

Olmert acknowledged this month that Talansky had raised funds for his two successful campaigns for mayor of Jerusalem in 1993 and 1998, a failed bid to lead the right-wing Likud party in 1999 and a further internal Likud election in 2002.

The prime minister said his former law partner had handled the details, and voiced confidence that the attorney had made sure proper procedures were followed.

Israeli law broadly prohibits political donations of more than a few hundred dollars.

Police have said Olmert is suspected of taking “significant sums of money from a foreigner or a number of foreign individuals over an extended period of time”.

A judicial source said the sums involved totaled hundreds of thousands of dollars.

On Sunday, Attorney-General Menachem Mazuz said the investigation, one of several focusing on corruption suspicions against Olmert, would not be finished any time soon.

Police say they intend to question Olmert for a second time within the next few days.