Malta government chief of staff resigns; questioned in murder probe

Police sources said Schembri was being questioned in connection with the case, but gave no further detail. Neither Schembri nor his lawyer were immediately available for comment.

Schembri had been facing pressure to resign from opposition politicians and Caruana Galizia's family because of his alleged financial ties to businessman Yorgen Fenech, who was detained last week as a person of interest in the murder probe.

The alleged murder plot middleman Melvin Theuma was granted a presidential pardon on Monday in return for information he had given about the case. Local media reported that he had handed over audio recordings.

"What is happening now, and what happened last week is an operation that is hopefully solving the Daphne Caruana Galizia murder," Muscat told Reuters on Tuesday. "Whatever people might say, there is no impunity in this country."

Muscat is a close friend of Schembri and had repeatedly rejected calls to sack him when allegations of corruption surfaced several years ago. Schembri always denied wrongdoing.

Caruana Galizia, one of Malta's best-known investigative journalists, was blown up as she left her home on Oct. 16, 2017 in a murder that shocked Europe and raised questions about rule of law on the small Mediterranean island.

Three men are awaiting trial for setting off the bomb and police sources say the investigation into who actually ordered the killing has made big advances in the past week.

Neither Fenech nor his lawyer have made any comment since his detention.

"TURBULENT TIME"

A Reuters investigation last year revealed that Fenech was the owner of a secret company called 17 Black, which was named in emails as being the vehicle to fund secret Panama companies owned by Schembri and Tourism Minister Konrad Mizzi.

It is not known whether any funds actually changed hands. Schembri, who has many business interests, and Mizzi have always denied wrongdoing.

Opposition politicians and Caruana Galizia's family have denounced Muscat for allowing the two men stay at their posts and have called on him to step down.

"Muscat, who spent three years taking full responsibility for Schembri, must leave right now. He simply cannot be trusted to not obstruct justice. He has done so for too long," Caruana Galizia's son Matthew wrote on Twitter.

But the prime minister told Reuters he had no intention of resigning at present.

"My role right now is to ensure the country has stable leadership. My role is to make sure we navigate through this turbulent time," he told Reuters.

Mizzi resisted calls to resign, saying he had no ties to Fenech or the events surrounding Caruana Galizia's killing.

Caruana Galizia regularly posted allegations of corruption on her blog and on various occasions targeted members of the Muscat government, including Schembri and Mizzi.

Six months before her death, the two men said they would sue her for libel over allegations she made about their Panama-registered interests. (Reporting by Stephen Grey and Chris Scicluna; Editing by Crispian Balmer and Alex Richardson)