Judge Emmett Sullivan, right, addresses former Alaska Sen. Ted Stevens, centre, in federal court in Washington on Tuesday. (Dana Verkouteren/Associated Press)

A seething federal judge dismissed the corruption conviction of former Alaska senator Ted Stevens on Tuesday and took the rare and serious step of ordering a criminal investigation into prosecutors who he said poisoned the case.

"In nearly 25 years on the bench, I've never seen anything approaching the mishandling and misconduct that I've seen in this case," U.S. District Judge Emmet Sullivan said.

Sullivan appointed a special prosecutor to investigate Justice Department lawyers who repeatedly withheld evidence from defence lawyers and the judge during the month-long trial. Stevens was convicted in October of lying on Senate forms about home renovations and gifts he received from wealthy friends.

The case cost Stevens, 85, a Senate seat he had held for 40 years. Once the Senate's longest-serving Republican, he narrowly lost to Democrat Mark Begich soon after the verdict.

Case could end prosecutors' careers

Now, the case could prove career-ending for prosecutors in the Justice Department's public corruption unit. After Sullivan dismissed the case, Stevens turned to his friends in the courtroom and held up a fist in victory as his wife and daughters broke into loud sobs.

"Until recently, my faith in the criminal system, particularly the judicial system, was unwavering," Stevens told the court Tuesday, his first public comments since Attorney General Eric Holder announced he would drop the case against the former senator.

Ted Stevens leaves the federal court Tuesday in Washington with his daughters, from left, Beth Stevens, Lilly Stevens and Susan Covich. (Susan Walsh/Associated Press)

"But what some members of the prosecution team did nearly destroyed my faith. Their conduct had consequences for me that they will never realize and can never be reversed."

The unravelling of the case overshadowed the facts of a trial in which Stevens was shown to have accepted thousands of dollars in undisclosed gifts.

Sullivan appointed Washington attorney Henry Schuelke to investigate contempt and obstruction by the Justice Department team. Schuelke is a former prosecutor and veteran defence lawyer who oversaw a U.S. Senate Ethics Committee investigation into influence-peddling allegations against former New York Senator Alfonse D'Amato in 1989.

Sullivan said the misconduct was too serious to be left to an internal investigation by the Justice Department, which he said dragged its feet before investigating. He criticized former attorney general Michael Mukasey for not responding to complaints:

"Shocking, but not surprising," Sullivan said.

He worried aloud about how often prosecutors withhold evidence, from Guantanamo Bay terrorism cases to public corruption trials. He called on Holder to retrain all prosecutors in the department.

Prosecutor probe threatens to derail other cases

The decision to open a criminal case raises the question of whether the prosecutors, who include top officials in the department's public corruption unit, can remain on the job while under investigation and facing the threat of prison time, fines and disbarment.

It also threatens to derail the investigation into other public officials, including Alaska Representative Don Young, a Republican who has been under scrutiny by the same prosecutors now being investigated. Young's lawyer attended Tuesday's hearing but said nothing after it ended.

Subjects of the criminal probe are lead prosecutor Brenda Morris, the Justice Department's No. 2 corruption official and an instructor within the department; Public Integrity prosecutors Nicholas Marsh and Edward Sullivan; Alaska federal prosecutors Joseph Bottini and James Goeke; and William Welch, who did not participate in the trial but who supervises the Public Integrity section and has overseen every major public corruption case in recent years.

Sullivan repeatedly scolded prosecutors for their behaviour during trial. After the verdict, an FBI whistleblower accused the team of misconduct and Sullivan held prosecutors in contempt for ignoring a court order.

'I was sick in my stomach': new lawyer

The prosecution team was replaced and, last week, the new team acknowledged that key evidence was withheld. That included notes from an interview with the government's star witness, contractor Bill Allen.

On the witness stand, Allen said a mutual friend told him not to expect payment for Stevens' home renovations because the senator only wanted the bill to cover himself. It was damaging testimony that made Stevens look like a scheming politician trying to conceal his freebies.

But in the previously undisclosed meeting with prosecutors, Allen had no recollection of such a discussion. And he valued the renovation work at far less than what prosecutors alleged at the trial.

"I was sick in my stomach," lawyer Brendan Sullivan said Tuesday, recalling seeing the new evidence for the first time. "How could they do this? How could they abandon their responsibilities? How could they take on a very decent man, Ted Stevens, who happened to be a United States senator, and do this?"

The Justice Department did not comment after court and the prosecutors under investigation either declined comment or did not respond to messages. But Paul O'Brien, a federal prosecutor newly assigned to the case, apologized to the judge on behalf of the department.

Despite the prosecutorial misconduct, the trial revealed that Stevens — regardless of Allen's discredited testimony — accepted a massage chair, a stained-glass window and an expensive sculpture but never disclosed them on Senate documents.

None of that mattered Tuesday as Stevens gave what amounted to the election victory speech he never had a chance to give. Standing at the courtroom lectern, he thanked his friends, his supporters and his wife. And he vowed to push his friends in the Senate for tough new laws on prosecutorial misconduct.

Then, with the prosecution team feeling the scrutiny that Stevens felt for years, he smiled, posed for pictures with his family outside the courthouse and said: "I'm going to enjoy this wonderful day."