Government spokesman Silvio Sircana, who was dragged this week into a widening vice and extortion probe, received a public apology on Thursday.
Photographer Max Scarfone said he invented claims to have snapped Sircana kerb crawling on a street worked by transsexual prostitutes - claims which were reported in the media and led to a brief health crisis for the spokesman.
Several dailies on Wednesday carried transcripts of a bugged phone conversation between Scarfone and well-known paparazzo Fabrizio Corona in which Scarfone said he had photographed a "very important political person" in his car talking to a transsexual prostitute.
Il Giornale, a daily owned by the family of opposition chief and former premier Silvio Berlusconi, went further by naming the politician as Sircana, who was appointed spokesman for Premier Romano Prodi's centre-left government last month.
But Scarfone told reporters on Thursday that he had "invented everything as a joke".
"I would like to apologise to Sircana. He's a decent person whom I have involuntarily caused a lot of trouble. The photos don't exist and I'm to blame for having told a pack of lies," he said.
"In order to keep Corona happy, I told him this rubbish about transsexuals... I was just fooling around and in fact, a colleague who was with me was in fits of laughter," he said.
Corona was among three people arrested on Monday while nine others were placed under house arrest, including porn industry manager and director Riccardo Schicchi.
Lele Mora, a celebrity manager and advisor, was one of six people ordered to remain in Italy.
Corona and Mora are accused of running a prostitution ring in which aspiring models and starlets were 'hired out' to businessmen and celebrities for encounters, parties and holidays.
They are also accused of framing sports and showbusiness celebrities, businessmen and politicians and blackmailing them with compromising photos, in some cases using fake or manipulated images.
Sircana, a close friend of Prodi, was released from hospital on Thursday where he was admitted the day before for acute abdominal pain.
He was quoted as saying after the Il Giornale report, "They're trying to blacken my name. I'm an honest person and they're trying to ruin me".
POLITICIANS CALL FOR WIRETAP CRACKDOWN.
Politicians on both sides of the political divide expressed solidarity with Sircana and called for the swift passage of a bill aimed at curbing media publication of leaked investigative wiretaps and ensuring the full application of Italy's privacy laws.
The bill has been languishing in the House for the past eight months.
Justice Minister Clemente Mastella, who presented the bill last July in the wake of another wiretap scandal, said that "speeding up its approval would be positive and important for the country".
House Speaker Fausto Bertinotti also said a law was "necessary".
"Work on getting the law approved has begun but needs to be accelerated," he said.
Italy's Privacy Authority said immediate action had to be taken to prevent personal and private information ending up in the media.
Authority chief Francesco Pizzetti also called on newspapers, reporters and photographers to "respect privacy principles and people's dignity".
The bill drawn up by Mastella includes hefty fines for newspapers who publish unauthorised transcripts of taped phone conversations.
CORONA EXTORTED MONEY FROM VIPS.
Prosecutors said this week that Berlusconi's daughter Barbara was one of the victims of Corona's extortion tactics and that her father paid out 20,000 euros to prevent the publication of photos of her leaving a nightclub with a male companion.
Barbara Berlusconi told dailies on Thursday that the photos had contained nothing compromising but were simply "ugly" and regarded a "private moment".
Corona and Mora are also alleged to have extorted 50,000 euros from Roma soccer ace Francesco Totti.
Inter star Adriano, motorcycling champion Marco Melandri and Agnelli heir and Fiat executive Lapo Elkann were among those who refused to yield to blackmail attempts, prosecutors said.
Investigators said they believed Corona possessed potentially compromising photos involving a host of public figures and that they were searching for this material.
The probe is being led by Potenza prosecutor Henry John Woodcock and is linked to another corruption and vice probe which led to the brief incarceration of Prince Vittorio Emanuele of Savoy.
The son of Italy's last king spent a week in jail last June, accused of helping to recruit prostitutes from Eastern Europe for a casino in Campione d'Italia, an Italian enclave in Switzerland, and of being involved in an illegal gambling machine scam. Prosecutors asked earlier this week that the charges be shelved.
Transcripts of the 69-year-old prince's taped phone conversations and those of others caught up in the investigation filled Italian newspapers for days on end in June and led Mastella to draw up the wiretap crackdown bill.
Two of the biggest scandals to hit Italy in recent years were also sparked by the publication of secret wiretapping information: a bank takeover one which led to the resignation of former Bank of Italy governor Antonio Fazio and a match-fixing one in the world of soccer.
