DUBLIN (Reuters) - Ireland is to investigate the illegal bugging of police phone conversations that has led to calls for the justice minister to resign.

The government said it was informed on Tuesday about a system under which incoming and outgoing telephone calls were taped and recorded at a large number of stations of the Garda, the Irish name for its police service.

The commissioner of the Garda, Martin Callinan, has retired from his position over the issue and the opposition has called for Justice Minister Alan Shatter to step down.

It is not clear why the calls were being taped or who was doing so, or who informed the government. The government said it would not make any further comment while the matter was being investigated.

"The implications of this matter are potentially of such gravity that the government has decided to set up a statutory commission of investigation into this matter of significant public concern," it said in a statement.

The government - a coalition of the centrist Fine Gael and leftist Labour that has enforced austerity measures to complete an EU/IMF bailout - said from the information available, the practice of making recordings was in place for many years and was discontinued in November of 2013.

The issue came to light after two police officers raised concerns to a parliamentary committee that senior members of the force had inappropriately removed penalty points from driving licences of some offenders.

Prime Minister Enda Kenny's Fine Gael has held up well in opinion polls despite austerity, but Labour's support has plunged and European and local polls in May will be a pointer for a national election due in two years' time.

(Reporting by Sam Cage; Editing by Alison Williams)