The Maltese prime minister’s chief of staff, who resigned this week, has been arrested and questioned over allegations that he was a co-conspirator in the murder of the investigative journalist Daphne Caruana Galizia.

Keith Schembri, a businessman who has run the office of the prime minister, Joseph Muscat, since the Maltese Labour party came to power in 2013, was arrested on Tuesday, police sources confirmed.

It is understood he was taken into custody after allegations were made by Yorgen Fenech, a businessman who was arrested last week after trying to leave Malta onboard his yacht.

Fenech, who is himself suspected of involvement in the killing, is understood to have provided evidence that implicates Schembri, in the hope of receiving a presidential pardon.

Caruana Galizia, Malta’s foremost investigative journalist, was killed in October 2017 when a bomb fixed to her car detonated near her home in the village of Bidnija. She had exposed corruption at the highest levels in government and business circles. The killing of a prominent journalist within a European member state drew international attention and raised concerns about the rule of law in Malta.

Caruana Galizia’s family said they were seeking an urgent meeting with the attorney general, Peter Grech, in an effort to prevent Fenech from being granted a pardon. “We urgently want to clarify the situation,” the family said.

An official in the attorney general’s office said he would meet the family to discuss their concerns.

Quick Guide Daphne Caruana Galizia investigation: who's who Show Daphne Caruana Galizia Malta's best-known investigative journalist was killed in a car bomb as she left her home in October 2017. Alfred Degiorgio, George Degiorgio and Vincent Muscat Three men in their fifties arrested in December 2017 and then formally charged in July 2019 with Caruana Galizia’s murder, criminal conspiracy and the criminal use of explosives. Melvin Theuma A taxi driver from Birkirkara and suspected middleman in the Caruana Galizia case, he was arrested on 14 November 2019 in a separate money laundering case. He has offered to provide information he says he has on the journalist's death in exchange for a pardon. Yorgen Fenech A prominent businessman arrested onboard his yacht as a person of interest in the Caruana Galizia investigation on 20 November 2019. One of the journalist's final investigations was a leak of data from his businesses. He has previously denied any wrongdoing. On 28 November his lawyers deposited a letter in court to Malta’s president formally asking for a pardon in return for information relating to the case. On 29 November the request was turned down. Keith Schembri and Konrad Mizzi The Maltese PM's chief of staff and the tourism minister resigned on 25 and 26 November 2019 respectively. Caruana Galizia reported that they had taken control of secretive Panama shell companies soon after entering office. They deny any wrongdoing. Schembri was arrested on 26 November and released on 28 November. Police said that after an 'intensive investigation' they no longer felt the need to hold him. Joseph Muscat Malta’s prime minister who served between 2013 to 2020. He was criticised by opposition politicians for allowing Schembri and Mizzi to stay in their posts. Having said on 29 November 2019 that he would stay in the job until the investigation into the murder was complete, on 1 December in a televised address he instead announced that he would stay on until a new leader of his ruling Labour party was elected in January. The prime minister expressed “deep regret” for Caruana Galizia’s murder and spoke of the need for a “fresh page”. Photograph: Darrin Zammit Lupi/X01097

Lawyers for Schembri and Fenech did not respond to requests for comment. Malta police have made no statement.

In a further development, a doctor has been arrested on suspicion of passing messages between Schembri and Fenech. According to local reports citing police sources, Adrian Vella is suspected of passing messages to Fenech while he was in hospital. The businessman was admitted on Saturday while on police bail and under close supervision by officers. At that point Schembri had not yet resigned from the prime minister’s office.

The doctor was close to Schembri, reports suggest, having accompanied him on trips for medical treatment in recent years. Vella could not be reached for comment.

The revelation will add to the pressure on Muscat to step down. The prime minister lost a key ally Wednesday when the Malta Today newspaper withdrew its support. The paper’s co-owner was known to be close to Muscat.

“Joseph Muscat’s moral authority has been compromised to the point of no return,” the paper’s executive editor wrote in a scathing editorial. “The stage is set for Muscat’s exit.”

Muscat is reportedly planning to address a Maltese Labour party rally on Sunday. But his education minister undermined the show of support by warning against raising the political temperature.

In a Facebook post on Wednesday, Evarist Bartolo said now was not the time for “hot heads and spreading hatred and violence”. He added: “Protests are essential in a democracy, but they have to be civil and democratic because it is easy to spark the crowd, but then how to put out the fire?”

The opposition Nationalist party has cancelled an event that was being planned for Sunday after criticism that it could inflame the situation. Caruana Galizia’s family have urged supporters to attend demonstrations organised by campaign groups and avoid party political events.

“DO NOT go to any rallies organised by party leaders,” her son Matthew Caruana Galizia wrote on Facebook. “This is not a time for tribal politics. Joseph Muscat wants us to go to war against each other. Our war is against corruption.”

Schembri was arrested after tendering his resignation on Monday night following a long meeting at Muscat’s home. He spent Tuesday night in police custody.

For nearly four years, Schembri has been at the centre of a political scandal triggered by Caruana Galizia’s investigations. Using a leak of offshore information known as the Panama Papers, she reported that Schembri and a fellow minister, Konrad Mizzi, became the beneficiaries of secretive offshore companies soon after entering office.

Subsequent investigations uncovered that those companies were due to receive payments from another shell company, belonging to Fenech. The businessman was granted a valuable concession by the government to run a power station while Mizzi was energy minister.

Mizzi resigned on Tuesday, saying he was guilty of poor judgment but innocent of any criminal conduct. Schembri has previously denied all allegations of wrongdoing.

A suspected intermediary, Melvin Theuma, was on Monday granted a presidential pardon in exchange for information, and he is scheduled to testify before a magistrate on 29 November.

Three accused hitmen – Alfred Degiorgio, George Degiorgio and Vincent Muscat – remain in detention following their arrest on 4 December 2017 and have not yet been brought to trial. They have been charged with planting the explosive device that killed Caruana Galizia.

The campaign group Reporters Without Borders called for all those implicated in the murder to be brought to trial. “After two long years of impunity, we welcome the significant developments that now appear to be taking place in the investigation into the assassination of Daphne Caruana Galizia. However, these are not sufficient steps towards justice. We call for all hitmen, all middlemen, and all masterminds to be prosecuted to the full extent of the law,” said its UK bureau director, Rebecca Vincent.

There were clashes inside Malta’s parliament on Wednesday and opposition MPs walked out of the House of Representatives in protest at what they said was Muscat’s refusal to shoulder political responsibility.

Before leaving the chamber, the Nationalist party leader, Adrian Delia, called for Muscat to resign and announced his party would no longer speak to a “government that has lots its legitimacy, since the prime minister does not recognise his political responsibility”.