PRAGUE (Reuters) - A Czech state attorney has dropped charges against the ruling ANO party’s number two Jaroslav Faltynek and three others but will further pursue fraud charges against Prime Minister Andrej Babis, a spokeswoman said on Thursday.

FILE PHOTO: The deputy chairman of ANO party Jaroslav Faltynek leaves the Czech Parliament after negotiations with other parties following the country's parliamentary elections in Prague, Czech Republic, October 22, 2017. REUTERS/David W Cerny

The ruling means Babis remains open to prosecution over charges he fraudulently won European Union subsidies, a prospect that has prevented Babis from creating a government as smaller parties have refused to back him while the accusations remain.

Babis and 10 others including Faltynek had faced charges that they hid ownership of a farm and conference center outside Prague to qualify for a two million euro EU subsidy a decade ago.

The subsidy program was meant for small businesses, and firms controlled by the billionaire businessman Babis would not qualify.

The charges are the main factor behind Babis’s failure to form a government more than half a year after ANO easily won a parliamentary election.

Most other parties reject working with Babis unless he steps aside as prime minister, pending the investigation. He has refused to do that, and is now trying to negotiate a center-left coalition government with the Social Democrats and backed by the far-left Communists.

Another objection to Babis cited by his critics is that he has conflicts of interest as many of his firms receive subsidies and do business with the state.

Faltynek was a long-time executive and board member at Babis’s Agrofert empire of over 200 companies in agriculture, chemicals, food processing, forestry and media, and now serves as the head of ANO’s parliamentary faction.

A spokeswoman for the Prague state attorneys’ office said the attorney ruled on complaints against the investigation lodged by the 11 charged people.

“Complaints by Andrej Babis and another six people were rejected as unfounded,” Stepanka Zenklova said.

“In the case of Jaroslav Faltynek and three others, the ruling on criminal investigation was dropped,” she said.

Babis denies any wrongdoing and has repeatedly said the investigation was a plot against him.

Babis’ wife Monika Babisova is among the people facing charges which carry jail sentences if proven in court.

Babis moved most of his assets to trust funds last year to comply with conflict-of-interest legislation. The trust funds are controlled by his close collaborators including his wife.