In a related development, Taiwan's "executive yuan" accepted the resignation of Chiou and "foreign minister" James Huang on Tuesday.

Several of outgoing Taiwan leader Chen Shui-bian's associates -- including Chiou, Huang and "vice defense minister" Ko Chen-heng-- have been implicated in the scandal.

According to local media reports, funds of 29.8 million U.S. dollars were appropriated in 2006 by Taiwan to secure ties with Papua New Guinea. The funds were to be given to the country as economic aid once diplomatic relations were established.

The funds, however, were allegedly taken by Taiwanese businessman Ching Chi-ju and Singaporean Wu Shih-tsai, who acted as intermediaries in the abandoned deal.

Ching was recommended by Chiou, then head of the "national security bureau," to "foreign minister" Huang in 2006.

During March and April of 2008, the Taiwan authority sued the two businessmen in an attempt to recover the missing money. At the same time, it requested Singapore's high court to freeze their joint bank account.

The scandal surfaced last week with a story in a Singaporean newspaper.

In recent days, Chiou, Huang and Ko have been questioned by prosecutors over the case.

Both Chiou and Huang acknowledged the diplomatic deal and said they would take the largest share of political responsibility.

The scandal has shocked the island. Some media reports pointed out that Chen was finding it difficult to escape responsibility for the scandal.

Chiou is the highest-ranking official during the past eight years of Chen's tenure to be sued by local prosecutors.

A member of the Democratic Progressive Party (DPP) demanded that Chen give an explanation of the case; otherwise, the member said, the DPP might be damaged. All wanted to know what role Chen had played, he said.