French Prime Minister Dominique de Villepin has refused to resign over a growing scandal involving an alleged intelligence investigation of a competitor, a Luxembourg bank and kickbacks paid on an arms contract.

"Nothing justifies a departure today," Villepin said Tuesday. "I have been unjustly accused," he told radio station Europe 1.

Opposition leaders and the French media are questioning his leadership because of the scandal, as well as a failed attempt to impose tough new employment rules on young workers, which led to a number of demonstrations, and the immigrant riots that rocked France last year.

French PM Dominique de Villepin says he's ready to answer questions about a growing political scandal.(Associated Press)

The scandal story began in 1991, when France sold frigates to Taiwan for $2.8 billion US.

Kickbacks from the sale were allegedly paid into accounts of a whole list of French politicians at the Clearstream bank in Luxembourg>

A judicial inquiry concluded the allegations were baseless, and then moved on to try and discover who created the list, and whether the government moved too slowly in clearing the politicians – who come from both the left and right – as a way of discrediting them.

Then on Friday, the newspaper Le Monde said that in 2004, Villepin had asked French intelligence to focus the Clearstream investigation on Interior Minister Nicolas Sarkozy, who's expected to challenge Villepin to become the right-wing candidate in the 2007 presidential election.

On Tuesday, the newspaper Le Figaro carried a denial from Gen. Philippe Rondot, the source of Le Monde's story.

"Villepin never asked me to get interested in politicians," he was quoted as saying.

Villepin cited Le Figaro's report in refusing to resign.

He denounced the allegations, and said he is ready to answer questions from the investigators.