Israeli police have recommended the country's Prime Minister Benjamin Netanyahu be charged with corruption

Israel's prime minister Benjamin Netanyahu has vowed to remain in office and today insisted his government is 'stable' after police recommended he should be indicted on bribery and breach of trust charges.

The recommendations came after Netanyahu allegedly accepted gifts from Hollywood mogul Arnon Milchan and Australian billionaire James Packer.

There were also suspicions that he offered to give preferential treatment to a newspaper publisher in exchange for favourable coverage.

And the fresh development will deal an embarrassing blow to the embattled prime minister and is likely to fuel calls for him to resign.

Following the announcement late on Tuesday, Netanyahu angrily rejected the accusations, which included accepting nearly $300,000 dollars in gifts from the two billionaires.

Mr Parker is one of several wealthy businessmen Israeli police questioned about expensive gifts allegedly given to Netanyahu and his family.

These items included champagne, hotel rooms, meals and cigars. There is no suggestion of any wrongdoing by Mr Packer.

Mr Packer struck up a close friendship with Netanyahu in 2014 after the pair were introduced by mutual friend, Arnon Milchan, a major Hollywood producer.

The Australian billionaire later bought a waterfront home next door to the Israeli PM's private beachfront home in Caesarea and was a special guest at speeches delivered by Mr Netanyahu to the US Congress and UN General Assembly in New York in 2015.

Netanyahu later accused police of being on a witch hunt and vowed to remain in office and even seek re-election.

Netanyahu said: 'I will continue to lead the state of Israel responsibly and loyally as long as you, the citizens of Israel, choose me to lead you.

'I am sure that the truth will come to light. And I am sure that also in the next election that will take place on time I will win your trust again, with God's help.'

The police recommendations now go to Attorney General Avihai Mendelblit, who will review the material before deciding whether to file charges.

Netanyahu is allowed to remain in office during that process, which is expected to drag on for months.

But with a cloud hanging over his head, he could soon find himself facing calls to step aside.

During similar circumstances a decade ago, Netanyahu, as opposition leader, urged then-prime minister Ehud Olmert to resign during a police investigation, saying a leader 'sunk up to his neck in interrogations' could not govern properly.

Olmert resigned from office after police recommended he be indicted for graft. He was freed from prison in July after being granted parole from a 27-month sentence.

In the immediate aftermath of the police announcement, reactions quickly fell along partisan lines.

Police were investigating Netanyahu over suspicions that he received expensive gifts, including pricey cigars, from wealthy supporters such as Hollywood producer Arnon Milchan and Australian billionaire James Packer (pictured)

Benjamin Netanyahu (pictured) has lashed out at police with detectives reportedly on the verge of recommending his indictment for taking bribes

Former prime minister Ehud Barak, a bitter rival of Netanyahu, called on him to suspend himself and for the coalition to appoint a replacement on Wednesday morning.

He said: 'The depth of corruption is horrifying. This does not look like nothing. This looks like bribery.'

But key members of Netanyahu's Likud Party rallied behind him. Cabinet minister Miri Regev said she was 'not excited' by the police recommendations and urged patience while the attorney general reviews the case.

She said the biggest surprise was that Yair Lapid, leader of the opposition Yesh Atid party, had been a witness. David Amsalem, another Netanyahu confidant, called Lapid a 'snitch'.

Lapid later issued a statement calling on Netanyahu to resign.

He said: 'Someone with such serious accusations against them, many of which he does not even deny, cannot continue to serve as prime minister with responsibility for the security and well-being of Israel's citizens.'

For months, police have been investigating two cases against him. In one probe, Mr Netanyahu reportedly received over $100,000 in gifts from Hollywood mogul Arnon Milchan (centre, with Brad Pitt and Angelina Jolie in Los Angeles) and other wealthy supporters in return for 10-year US visas

Netanyahu posted a response on Facebook late last Wednesday in which he lashed out at the police commissioner, calling suggestions that he sent private investigators on such a mission 'ridiculous'.

His post said: 'It is shocking to discover that the commissioner has repeated the mistaken and ridiculous suggestion that Prime Minister Netanyahu sent private investigators after the police who are investigating him.'

He also referred to claims that sexual harassment allegations against the head of the unit investigating Netanyahu were an attempt to smear him because of the graft probe.

His post added: 'Any honest person would ask himself how people who say such delusional things about the prime minister can objectively investigate him and honestly give unbiased recommendations.

'A large shadow was cast tonight over the police investigations and their recommendations related to Prime Minister Netanyahu.'

The investigation has raised the possibility that Netanyahu, prime minister for a total of nearly 12 years, will eventually be forced to resign.

His wife allegedly received bottles of pink champagne. The gifts were reportedly worth some tens of thousands of dollars.

They were also probing allegations that he sought a secret deal for favourable coverage with the publisher of top-selling newspaper Yediot Aharonot.