(AFP) - Deputy Prime Minister Abdullah Ahmad Badawi today denied persistent rumours that former finance minister Daim Zainuddin had been arrested.

"There is no reason why at the moment police should take any action against him," Abdullah, who is also home affairs minister, was quoted as saying by the Bernama news agency.

Abdullah said: "What Daim does in the future, I do not know but for the time being, Daim is not a subject of police investigation."

The deputy premier was responding to rumours that Daim was under police investigation and that he had been arrested.

Prime Minister Mahathir Mohamad announced Daim's resignation on June 2 and later said he would be acting finance minister until he finds a replacement.

Daim, 63, was widely considered Malaysia's most powerful man after Mahathir and was born in the same village as the premier.

But there were persistent rumours of disagreements in recent years although both men denied it.

The finance minister took "leave" in April around the time Mahathir appointed former central bank governor Ali Abul Hassan Sulaiman as one of his own economic advisers.

Abdullah said that there had been so many rumours about Daim of late and they were not true.

The rumours, he said, might have been created by people who were not happy with Daim.

"Don't be driven by rumours, if we are driven by rumours, we cannot govern the country," he said.

Mahathir announced on April 19 that Daim was taking two months' leave because he was "tired".

Daim was finance minister from 1984-91. He returned to the cabinet in June 1998 as special functions minister to promote economic recovery amid the regional financial crisis.

Daim, 63, was apointed finance minister in January 1999 following the sacking of Anwar Ibrahim.