The claim was made last month by Shafee Yahaya, former head of the Anti-Corruption Agency, during the sodomy trial of ex-deputy premier Anwar Ibrahim.

Police said in a statement quoted by the official Bernama news agency that they opened the inquiry after Anwar made a complaint to them on June 13, the day after Shafee gave his sworn evidence.

Shafee testified that Mahathir personally ordered him to drop an inquiry into an official who later became central bank governor.

He said the incident happened in June 1998 -- three months before Mahathir sacked Anwar -- after the Anti-Corruption Agency raided the office of the director general of the Economic Planning Unit and found a large sum of money.

At the time the unit's director general was Ali Abul Hassan Sulaiman. He was appointed central bank governor in September 1998 after the previous governor and his deputy -- seen as close to Anwar -- resigned.

Anwar was sacked as deputy premier and finance minister by Mahathir on September 2, 1998, and detained on September 20 after leading anti-government protests. In April 1999 he was jailed for six years for abuse of power and could face another 20 years if convicted of sodomy.

Ali Abul has now retired.

Anwar says he was framed because he threatened to expose corruption and was seen as a political threat to Mahathir.

The government denies any plot and courts have rejected defence demands that Mahathir be made to testify about the alleged plot and other matters.

Shafee said Mahathir had asked him: "How dare you raid my senior officer's office?" and had inquired if Anwar ordered the raid.

Asked by the trial judge about the relevance of the evidence, lead defence counsel Christopher Fernando said he was trying to show "bad blood" between Anwar and Mahathir.

Both sides in the sodomy trial must submit written closing arguments by Thursday but it is not known when the judge will give his verdict.