Brazilian Finance Minister Antonio Palocci defends himself against corruption allegations before the Economic Affairs Committee of the Senate in Brasilia, in this November 16, 2005.  Palocci, architect of the government's market-friendly economic policies, stepped down on Monday as a corruption scandal swelled around him. ( File photo, Xinhua/Reuters)

BRASILIA, March 27 (Xinhua) -- Brazil's Finance Minister Antonio Palocci handed in his resignation on Monday following a renewed flare up of corruption allegations that have dogged him for months, government officials announced.

    He was immediately replaced by Guido Mantega, president of Brazil's National Economic and Social Development Bank (BNDES), Aloizio Mercadante, government leader in the Senate, announced at a news conference on Monday.

    Mantega, a long-term confidant of Brazilian President Luiz Inacio Lula da Silva, pledged that he would not change the currenteconomic policy, even though he had criticized Palocci for being too conservative on monetary and fiscal policies.

    The last straw that prompted Palocci to step down was the testimony of a former caretaker at a villa. The witness said he saw the finance minister visit the house between 10 and 20 times, and that his former workers had always greeted him as "the chief,"which contradicted Palocci's version of events.

    The villa was known as a meeting place for Palocci's former aides who used it to divide up proceeds of illegal lobbying operations and also sometimes to meet prostitutes.

    The pressure on Palocci increased sharply when a police statement revealed that the head of Caixa Economica Federal, a state savings bank, had intervened to publish the caretaker's bankaccount details in an effort to discredit him.

    Palocci, who was appointed last month as head of the Lula re-election campaign ahead of the October elections, made his decision public within minutes of the publication of the police statement. Enditem