Prime Minister Stephen Harper has dropped a $3.5-million libel lawsuit against the Liberal party over statements published on the party's website suggesting the Tories offered a bribe to the late Independent MP Chuck Cadman.

Lawyers for both parties issued a joint news release late Friday, saying they've settled all issues in the case.

Neither side will make any further comment.

Harper launched the lawsuit in March 2008 after the Liberal party posted website headlines alleging two senior Conservatives attempted to bribe Cadman to secure his co-operation on a crucial budget vote that threatened to topple the Liberal minority government in May 2005. The headlines claimed Harper also knew about the alleged bribe.

Back in March, Harper called the allegations "absolutely false" and "despicable."

In a book published earlier in 2008, B.C. author Tom Zytaruk quotes Cadman's widow, Dona, as saying her husband told her that Conservatives offered him a $1-million life insurance policy in return for his vote against the Liberals.

In an interview for the book, Harper can be heard on tape saying: "I don't know the details, I know that, um, there were discussions, um, but this is not for publication?"

Tape was edited, Harper testified

During cross-examination during libel proceedings in August, Harper said that the tape had been edited.

Harper testified that he only authorized for Cadman to be approached with an offer of financial help for his election campaign if Cadman would vote against the Liberals, defeating the government, and then run for the Conservatives.

Harper also testified that he told Zytaruk he did not know about the offer of an insurance policy, and he said Zytaruk edited that response out of the recording.

But a court-ordered analysis of the tape found that the first part of Zytaruk's interview with Harper, which contains the portions the prime minister has contested, had not been altered.

The second part, beginning roughly one minute and 41 seconds into the tape, was a new recording that was made over the final part of the original recording, the audio expert found.

Cadman ultimately cast his vote in 2005 with the governing Liberals. With his support, the House voted evenly, 152 to 152, on Bill C-48. That left Speaker Peter Milliken, who is a Liberal MP, to break the tie with a vote for the budget.

Cadman died of cancer soon after.

With files from the Canadian Press