The Liberal Democratic Party (LDP) said it was suspending Mrs Tanaka's membership for two years after she failed to fully co-operate with an investigation into the scandal.

It's very close to expelling her from the party

LDP legislator Katsuei Hirasawa

The suspension means she cannot vote in party presidential elections or stand as an LDP candidate.

It prompted speculation that Mrs Tanaka, a lower house lawmaker who is still popular among many Japanese voters, might leave the party to join the opposition.

The head of the LDP's ethics committee, Noboyuki Hanashi, said it was the first time the party had used such a measure.

Other LDP legislators described the sanction as harsh.

Mrs Tanaka was sacked from the Foreign Ministry in January by Prime Minister Junichiro Koizumi after she conducted a high-profile battle with ministry officials and Muneo Suzuki, a senior LDP politician.

Denial

But her reformist credentials were damaged when she was accused of misusing public funds earmarked to pay her secretaries.

She has denied any wrongdoing and submitted tax reports and other records to the ethics committee, though she turned down a request for further information.

Her suspension comes just one day after her former enemy, Mr Suzuki, was arrested on corruption charges.

The BBC's Charles Scanlon in Tokyo says the suspension is a big setback for a politician who was seen as a symbol of reform, battling long-established and corrupt vested interests.

He says Japan's old guard politicians and their reformist critics now seem equally susceptible to charges of financial irregularities.