Mr Kasyanov, who was sacked by President Putin last year, hinted in February that he would run in 2008, when Mr Putin is due to step down under the current constitution.

Two weeks ago, however, while Mr Kasyanov was on holiday abroad, prosecutors opened an investigation into whether he had arranged to buy a $27 million (£15 million) dacha at below its market value while he was Prime Minister.

Rumours have been circulating since that he would apply for political asylum in Britain to avoid becoming the highest-ranking Russian official to face criminal charges since the collapse of the Soviet Union in 1991.

Yesterday he returned to Moscow in defiant mood. “I have no doubt that a system- atic, wideranging, slanderous campaign aimed at discrediting me, based on lies and fabrications, is part of the authorities’ wider strategy of completely clearing the political field,” he said in a statement. “The results of putting such a strategy into practice are obvious — the authorities are losing touch with their people, citizens’ uncertainty about their future is growing, economic growth is slowing amid record-high export prices and Russia’s authority is steadily declining in the world.”

Since taking office in 2000 President Putin has re-established Kremlin control over parliament, government, media and business, raising fears in the West that Russia is returning to its authoritarian past.

The Opposition was trounced in parliamentary elections in 2003 and Mr Putin won a second term with 71 per cent of the vote in a presidential poll last year. Then Mikhail Khodorkovsky, the oil tycoon, was jailed for nine years in May in what was widely seen as punishment for funding opposition parties and hinting at running for president.

In February Mr Kasyanov, 47, called on the Opposition to unite, accusing President Putin of stifling democratic values and damaging Russia’s business climate. Asked then if he had presidential ambitions, he said: “Everything is possible.”

The “dachagate” investigation has been interpreted as a warning to stay out of politics.

“The Kremlin has become paranoid; they are over-reacting; they are pre-empting — trying to suppress, neutralise, intimidate and buy influence at every opportunity,” Masha Lipman, of the Carnegie Moscow Centre, said. “They have this sense that 2008 is imminent and this fear of so-called coloured revolutions.”

With no clear successor in line to take over from Mr Putin, the Kremlin is thought to be worried about the potential for a revolution like those that rocked Georgia, Ukraine and Kyrgyzstan in the past two years. Some officials have even suggested that Mr Putin could stay in power after 2008 either as the prime minister of a Russian parliamentary republic or as the president of a new union with Belarus.

Mrs Lipman said that the Kremlin was divided on the issue and that the investigation was most likely initiated by one faction — those with security service backgrounds known collectively as the “siloviki”.

Others are thought to be concerned that putting another political opponent on trial would further damage Russia’s reputation. “The Kremlin is not one united entity — there are different factions fighting over property and policy — and it’s not yet clear what Kasyanov wants,” Mrs Lipman said.

The inquiry was requested and made public by Aleksandr Khinshtein, a pro-Kremlin Duma deputy and a reporter with the tabloid Moskovsky Komsomolets. He accused Mr Kasyanov of using front companies to buy the dacha for $370,000 at a rigged auction, when its real value was estimated at more than $27 million.

The 11.5-hectare (28.4-acre) riverside plot in Troitse- Lykovo, western Moscow, has a tennis court and a private beach and was once occupied by Mikhail Suslov, the chief ideologist to the Soviet leader Leonid Brezhnev. The writer Aleksandr Solzhenitsyn owns the dacha next door.

Prosecutors have denied that their investigation was politically motivated. “There is no politics here,” Vladimir Kolesnikov, the Deputy Prosecutor-General, told a news conference. “We regard all this as a scheme to acquire property.”

Gleb Pavlovsky, a Kremlin adviser, said: “This is simply a case involving dachas . . . Judging by Kasyanov’s statement, he has deliberately chosen political methods of defence, perhaps because he is not very confident of his legal position.”

Mr Kasyanov, who has not yet been charged, has denied any wrongdoing and vowed not to withdraw from political life. Analysts say that he stands little chance of winning the 2008 election as he is too closely linked with Boris Yeltsin, the former President, and the oligarchs who made vast fortunes in the flawed privatisations of the 1990s.

Some say that his candidacy could help to legitimise the poll; and as a former Prime Minister he is likely to possess information that could compromise senior officials. “He’s got his trump cards, which can make the Kremlin nervous,” Mrs Lipman said. “I don’t think he’s going as far as jail.”

PUTIN'S POLITICAL CONTENDERS

Explore World News

• Iraq News

• US & Americas News

• Europe News

• Middle East News

• Asia News

• Africa News

• Ireland News

Times Recommends

• Congo's rangers risk their lives to guard gorillas
• Pearl farming in China losing its lustre
• Axl Rose mystery as album arrives at last