Umberto Bossi, leader of Italy's Northern League, is at the eye of a political and judicial storm after claims by prosecutors that taxpayers' money was used to pay for improvements to his house and for travel, dinners and hotel accommodation for his children.

The claims, based on evidence collected through wiretaps, came to light in a judicial warrant issued for the search of the party's headquarters in Milan. The chief prosecutor of Milan, Edmondo Bruti Liberati, said on Tuesday that neither Bossi nor any member of his family had been made a suspect in the inquiry.

But he added that the party's treasurer was a suspect, along with two others, "in connection with money taken away from the Northern League". The party's treasurer, Francesco Belsito, has resigned.

Bossi told reporters as he left party headquarters: "I will report to the police whoever used the League's money to do up my house. I know nothing about these things and, in any case, not having much money, I have still not finished paying for the improvement to my house."

Bossi's former ally, Silvio Berlusconi, leapt to his defence. "Anyone who knows Umberto Bossi and his personal and political life could not be even remotely touched by a suspicion that he had done anything illicit," Italy's former prime minister said.

One of the party's most senior figures, the former interior minister, Roberto Maroni, noted that the party's treasurer had been accused of irregularities on a previous occasion. "Belsito's resignation had already been asked for," he said. And, in an apparent reference to Bossi, he said: "He who ought to have decided [to ask the treasurer to go but] didn't do so."

Comments left on Northern League websites showed the affair had caused consternation among rank-and-file members of a party that has always presented itself as a beacon of decency in the murky swamp of Italian politics. The party, which is nominally committed to independence for the north of the country, has relentlessly attacked waste, corruption and the penetration into politics of organised crime in the south.

Before the emergence of the latest accusations, however, one of its most senior representatives in Lombardy, the region around Milan, had been placed under investigation on suspicion of accepting bribes worth more than €1m (£830,000). The bestselling author Roberto Saviano, an expert on organised crime, also caused a sensation in Italy last year when he accused Northern League officials of links to the 'Ndrangheta, the powerful mafia of Calabria. Both allegations have been denied.

Belsito began his political career as chauffeur to a former justice minister. He was a junior minister in Berlusconi's government, which fell last November.

He was already known to have attracted the attention of prosecutors in connection with the investment of party money in funds based in Cyprus and Tanzania. He is formally under investigation on suspicion of fraud, embezzlement and money laundering, all allegations he denies.