John Dalli has resigned from the European Commission, the Commission announced in a shock announcement this afternoon.

It said that Mr Dalli resigned following an investigation by the EU's anti-fraud office into a complaint made in May by the tobacco producer Swedish Match. It alleged that a Maltese entrepreneur had used his contacts with Mr Dalli to gain advantage from the company, in return for seeking to influence a possible future legislative proposal on tobacco products.

Sources said that Foreign Minister Tonio Borg is viewed as the least controversial choice for appointment as European Commissioner.

Mr Dalli was appointed to the Commission in 2010 and was responsible for Health and Consumer Policy.

He was first elected to the Maltese parliament in 1987 and became parliamentary secretary for industry. He later became Minister of Economic Affairs before serving as Minister of Finance for 10 years, with the rare distinction of having introduced VAT twice – the second after the short-lived Labour government removed the tax in 1996.

Mr Dalli was beaten by Lawrence Gonzi in the 2004 PN leadership contest. He was appointed Foreign Minister but resigned after three months amid allegations relating to his conduct.

In 2007 he was made a consultant to the prime minister and following the last election he became Minister of Social Policy and piloted the rent reform before resigning to take up his appointment in Brussels.

Despite his high profile job Mr Dalli kept a close watch on Maltese politics, occasionally making statements which were critical of the government and of the Nationalist Party. Just over a week ago he said the PN seemed to be following a policy which was akin to apartheid, where one either said yes to the leader or else he was made uncomfortable. He also argued that government policies had changed and there was unfair distribution of wealth.

THE EU'S STATEMENT IN FULL

The European Commission in its statement this afternoon said:

"Commissioner John Dalli has today announced his resignation as a member of the Commission, with immediate effect.

"Mr Dalli informed the President of the European Commission Jose Manuel Barroso of his decision following an investigation by OLAF, the EU's antifraud office, into a complaint made in May 2012 by the tobacco producer, Swedish Match. The company alleged that a Maltese entrepreneur had used his contacts with Mr Dalli to try to gain financial advantages from the company in return for seeking to influence a possible future legislative proposal on tobacco products, in particular on the EU export ban on snus. As soon as the Commission received the complaint it immediately requested OLAF to investigate.

The final OLAF report and its recommendations are being sent by OLAF to the Attorney General of Malta. It will now be for the Maltese judiciary to decide how to follow up

"The OLAF final report was sent to the Commission on 15 October. It found that the Maltese entrepreneur had approached the company using his contacts with Mr Dalli and sought to gain financial advantages in exchange for influence over a possible future legislative proposal on snus. No transaction was concluded between the company and the entrepreneur and no payment was made. The OLAF report did not find any conclusive evidence of the direct participation of Mr Dalli but did consider that he was aware of these events.

"The OLAF report showed clearly that the European Commission's decision making process and the position of the services concerned has not been affected at all by the matters under investigation.

"The final OLAF report and its recommendations are being sent by OLAF to the Attorney General of Malta. It will now be for the Maltese judiciary to decide how to follow up.

"After the President informed Mr Dalli about the report received from OLAF, Mr Dalli decided to resign in order to be able to defend his reputation and that of the Commission. Mr Dalli categorically rejects these findings.

"Mr Barroso has decided that Vice President Maros Sefcovic will take over the portfolio of Mr Dalli on an interim basis until a new Commissioner of Maltese nationality is appointed in accordance with article 246 (2) of the Treaty on the functioning of the European Union."