The Welsh assembly's deputy first minister, Michael German, has stepped down from the Welsh assembly's coalition executive.

The move came as police announced a formal investigation in to the Welsh Liberal Democrat leader's past business dealings.

German stresses that that he is stepping aside on a temporary basis until the fraud inquiry is concluded and he is cleared.

The accusations of fraud have dogged him and the Labour/Liberal Democrat coalition since its formation and German claims that he is the victim of a witch-hunt by political opponents.

The inquiry centres on the Welsh Joint Education Committee's (WJEC) exam board unit headed up by German headed and allegations surrounding the use of a corporate credit card and overseas trips by the European Unit

Allegations of wrong-doing "came out just at the time when we were having discussions about entering the coalition," he told the BBC.

The claims re-emerged at the general election campaign. "It doesn't take a genius to put two and two together to see that there's a connection between those things," he said.

His resignation letter to Labour's first minister Rhodri Morgan, repeats claims that the row is politically motivated and his fears that the allegations had begun to damage the reputation of Welsh devolved government.

"The continuing drip, drip effect of unsubstantiated leaks, allegations and speculation regarding my former employment is now having an adverse impact," he said.

He told PA news: "The crucial thing here is the government has to be able to continue to deliver its programme and not be destabilised by this issue continually growing".

And he was "increasingly frustrated that our political opponents should continue to seek to exploit this situation in order to destabilise the government of Wales".

German will not be stepping down as an assembly member and will continue as Lib Dem leader in the assembly Fellow Liberal Democrat Jenny Randerson will take his ministerial post and Rhodri Morgan will step back into the post of economic development.

German's opponents in the assembly have welcomed his resignation, Welsh Conservative leader Nick Bourne described the move as "entirely right" and Plaid Cymru leader Ieuan Wyn Jones rejected the claims of a witch hunt.

"Morgan has always made it clear that if there was a formal investigation by the police...he would have to step down," he said.

Rhodri Morgan, who has consistently defended German, said his resignation was "honourable".

"The opposition parties will try to spin this, that is their job. I accepted Mike's decision to prevent this damaging the coalition and damaging the Assembly itself," he said.