Former Taiwanese President Chen Shui-bian raises his hands with handcuffs as he is led away from the Taiwan prosecutor's office in Taipei, Taiwan, in November. (Associated Press)

Taiwanese prosecutors indicted former president Chen Shui-bian on graft charges Friday, a stunning blow for a man who rode to power 8½ years ago on promises to reform the island's corrupt political culture.

Prosecutor Lin Che-hui said the former leader could be given a life sentence in jail if found guilty on all charges.

Chen, 57, has been held in a suburban Taipei jail since Nov. 12 pending the results of an investigation into allegations he engaged in money laundering and other offences during his recently concluded time in office.

Indicted together with Chen were his wife, Wu Shu-chen, his son and daughter-in-law, three of his former aides in the presidential office, and eight other associates and family members.

Prosecution spokesman Chen Yun-nan said the former president and his wife together embezzled $3.12 million US from a special presidential fund, and received bribes in U.S. and Taiwanese dollars worth $9 million in connection with a government land procurement deal.

He said Wu alone took another bribe of $2.73 million from a government construction project.

"Chen Shui-bian undermined justice again and again and showed no regret," Chen Yun-nan said, adding that the former president and others should get "the most severe sentence."

Chen has denied all charges, saying he is being persecuted by President Ma Ying-jeou's new government for the strong anti-China stance that marked the waning years of his presidency.

At a news conference, Chen's lawyer echoed his client's claims of innocence.

"What prosecutors are charging President Chen and his wife with is not true," said Cheng Sheng-chu.

Ma's office said it would not comment on the indictments.

Chen, who ended a 50-year monopoly on power by Ma's Nationalist party in 2000, was first elected on promises to end official corruption in Taiwan.

His desire to carve out an independent political and cultural identity for Taiwan's 23 million people became the hallmark of his administration, which ended due to term limits seven months ago.

Since Chen was jailed on Nov. 12, the corruption scandal has galvanized Taiwanese from all walks of life.

The former leader went on hunger strike the day of his incarceration but began eating again after 16 days, heeding pleas from his wife and family to preserve his strength.

Chen is expected to mount a vigorous defence against the charges.