WELLINGTON : The future of New Zealand Foreign Minister Winston Peters was in doubt on Thursday after officials announced a fraud investigation into donations to his political party.

New Zealand's Serious Fraud Office said it would launch an investigation into whether funds donated to Peters' populist New Zealand First party were used as intended.

Speculation mounted that Prime Minister Helen Clark would ask Peters to step down as a minister after a meeting between the two expected on Friday.

Clark said she hoped to be "clear about the way ahead tomorrow".

The announcement of the fraud investigation followed weeks of increasing controversy surrounding Peters over large donations from business benefactors.

Clark appointed Peters foreign minister in 2005 in return for support of her minority Labour Party government, and she has been under pressure to suspend him until questions over the donations are answered.

Serious Fraud Office director Grant Liddell said the inquiry would focus in particular on a donation from property millionaire Sir Robert Jones of 25,000 dollars (17,650 US), and a number of donations for several thousand dollars from the wealthy Vela family.

"On information currently to hand there are serious questions whether donations intended for one purpose may have been put to a different purpose," Liddell said.

He said there might be an innocent explanation on what happened to the money, but an inquiry would allow the fraud office to access relevant documents.

Peters described the announcement of a fraud investigation as "ridiculous in the extreme."

He said the Serious Fraud Office had not spoken to him about the probe.

"If they had the courtesy to talk to me, this matter would have been cleared up in a few minutes," Peters said. "We will meet this investigation head on."

The pressure to suspend Peters comes at a bad time for Clark's government, which needs his party's support for legislation it wants to pass before elections due by mid-November.

Controversy surrounded donations to Peters' party before the Serious Fraud Office announcement, in particular a claim by Peters he was unaware of a 100,000 dollar donation from expatriate New Zealand businessman Owen Glenn.

Glenn this week contradicted Peters' assertion, saying the politician had personally asked him for a donation and thanked him for it later.

The 63-year-old veteran politician was a controversial figure in the government for his outspoken attacks on Asian immigration before becoming foreign minister, and for his confrontational style with the media. - AFP/de