Italy's Berlusconi denies any wrongdoing as arrests made over alleged extortion

Giampaolo Tarantini, an entrepreneur from the southern city of Bari, and his wife Angela Devenuto were arrested after payments from Berlusconi totalling as much as half a million euros were uncovered by investigators, prosecutors said.

The arrests return the spotlight to a prostitution scandal which dominated headlines in 2009 when Patrizia D'Addario, an escort connected with Tarantini, claimed to have been paid to attend parties at Berlusconi's private residence in Rome.

They come at a time when Berlusconi's centre-right government is struggling to tie up a revised 45.5 billion euro austerity package designed to reassure anxious markets about the solidity of Italy's strained public finances.

Naples prosecutors said that the three arrests had been made after extensive investigations that included wiretap evidence.

The payments used "hidden or at least untransparent means" and involved the intervention of Lavitola, it added.

The latest case is unrelated to the so-called "Ruby affair" in which Berlusconi is on trial in Milan accused of paying for sex with teenaged nightclub dancer Karima El Mahroug, known as "Ruby Heartstealer", when she was a minor.

However, it highlights the scandals still hanging over the government as it battles to prevent Italy being dragged back into the centre of the euro zone debt crisis.

Berlusconi, who was expected to attended a summit on Libya in Paris on Thursday, denied any wrongdoing.

"I confirm that what the investigating magistrates are saying is a pure fantasy. Pure fantasy. I gave a hand to a family with children which was in the deepest poverty. I did with this family as I do with a myriad of people who come to me. When I see that there are genuine motives to help out, I do it because I can afford to," he told reporters at the end of the conference.

Prosecutors said Tarantini and Lavitola, who appeared to have kept part of the money paid into front companies for himself, had acted together "to constrain Berlusconi to make further payments."

No comment was immediately available from lawyers acting for either of the two.

Tarantini, who was closely involved in the D'Addario affair, is being investigated separately over allegations that he provided paid escorts to curry political favours.

The current investigation is focused on suspicions that Tarantini lied to investigators when he told them repeatedly that Berlusconi was unaware that women brought to parties at his residences were prostitutes, Italian media said.

Berlusconi has denied the payments to Tarantini were the result of extortion.