The government's newly appointed spokesman was dragged into a widening vice and extortion probe on Wednesday.
Prosecutors said Silvio Sircana, who was made spokesman for Premier Romano Prodi's centre-left government last month, was one of the potential victims of a blackmailing scheme led by well-known paparazzo Fabrizio Corona.
Several dailies carried transcripts of a bugged phone conversation between Corona - who was arrested two days ago - and photographer Max Scarfone, in which the latter said he had snapped a "very important political person" in his car in a street worked by transsexual prostitutes.
Il Giornale, a daily owned by the family of opposition chief and former premier Silvio Berlusconi, named the politician as Sircana.
The premier's office subsequently denied reports that Sircana had resigned, saying it was "amazed at the attempt to throw more mud" at the spokesman.
Politicians on both sides of the political divide expressed solidarity with Sircana while the centre-left Daisy party accused Il Giornale of "lies and defamation".
"We are convinced that this business will soon be clarified and Sircana will be shown to have nothing to do with it," the Daisy said.
Three people were arrested on Monday, including 32-year-old Corona, 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 showgirls were 'hired out' to businessmen and celebrities for encounters, parties and holidays.
They are also accused of framing sports and showbusiness celebrities and politicians and blackmailing them with compromising photos.
Prosecutors said Berlusconi's daughter Barbara was one of the victims and that her father paid out 20,000 euros to prevent the publication of photos of her leaving a nightclub allegedly drunk with a male companion.
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 ongoing corruption and vice investigation 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.
