'The air force abided by the rules strictly to operate the presidential jet and didn't do anything outside the law,' it said in a statement.

The denial came after fresh accusations that Chen used the presidential jet to smuggle US$5.17 million (S$7.9 million) in cash to the Pacific Ocean island of Palau during a state visit there in 2006.

Lawmaker Chiu Yi of the governing Kuomintang party and one of the first politicians to allege Chen had been involved in taking bribes, money laundering and embezzlement, claimed on Taiwanese television that the money was stashed aboard the jet when it departed for a state trip.

Chen's office has flatly denied the allegations and has threatened to sue political commentator Sisy Chen for making similar claims last week in a column for the Apple Daily newspaper.

Palau is one of the 23 countries that formally recognise Taipei instead of Beijing.

Chen's office also dismissed a report by the Taipei-based Next Magazine that his family had wired three billion Taiwan dollars (S$137 million) to Japan. The magazine claimed this was money Chen's family had allegedly taken in bribes from local bankers during banking reforms under Chen's government.

'A great majority of the funds was used to buy stocks of the Mitsui Sumitomo Bank,' the third biggest bank in Japan, the weekly said.

Chen's office dismissed the allegations, saying: 'The report is groundless.' Chen, his wife, son, daughter-in-law, and brother-in-law have all been named as defendants in a money laundering case.

The ex-leader, detained since last month, is also being investigated for allegedly embezzling government funds, as well as taking bribes and document forgery.

Chen, the first former Taiwanese leader ever to be arrested, can be held for four months before prosecutors have to charge him.

His family has agreed to send back US$21 million found in their Swiss bank accounts as part of the probe, prosecutors said.

Chen, whose pro-independence stance while in office had angered Beijing, has repeatedly accused the island's current China-friendly government of being behind the corruption allegations against him.

Taiwan and China split in 1949 after a civil war, but Beijing still claims the island as part of its territory awaiting reunification, by force if necessary. -- AFP