Twenty six officials in Naples responsible for dealing with the Naples rubbish emergency, including Alessandro Pansa, the city’s chief of police, are under investigation for allegedly “illicitly trading in waste” instead of resolving the crisis.

Mr Pansa said he would not resign. “I am confident the investigation will show I have acted correctly”, he said. Mr Pansa served as the government’s special commissioner for the rubbish crisis for six months last year.

All those named by magistrates as under investigation were placed under house arrest, with the exception of Mr Pansa. Police said the investigation involved “waste trafficking and fraud”. Those under investigation include Marta Di Gennaro, a former senior assistant to Guido Bertolaso, the former head of civil protection, who only last week was named by Silvio Berlusconi, the Prime Minister, as special commissioner for the Naples rubbish crisis with the rank of under secretary. Reports said Mr Bertolaso had offered his resignation to Mr Berlusconi because his job had already become “impossible”.

There has been a sporadic “waste disposal emergency” in the Naples area since 1994, but it has reached new levels since last Christmas, with local residents setting up barricades to prevent the re-opening of overflowing landfills and setting fire to mountains of foul smelling, rat-infested refuse. Health officials today raised the alarm over epidemics as Italy experienced a continuing heat wave, with temperatures of 35 degrees in Naples.

The crisis is blamed on the Camorra, the Naples mafia, who have infiltrated the lucrative waste disposal business, dumping rubbish in illegal landfills and obstructing the building of new incinerators. Investigators suspect Camorra “collusion” with local officials. In March Antonio Bassolino, President of the Campania region and former mayor of Naples, and 27 waste management company executives were charged with fraud, abuse of power and “breach of trust in environmental matters.”

Today prosecutors said “eco balls” of compressed waste had never been burned because solid and liquid waste inside them had not been separated, making them a health risk. Another allegation is that officials colluded in the illegal dumping of untreated toxic waste in Germany. “Through a fraudulent mechanism, some of the waste was illegally buried in Germany in flagrant violation of EU rules” the prosecutors said in a statement. Waste commission officials had been “fully aware that some of the waste was dangerous”.

The investigation follows clashes this week between police and residents of the Naples suburb of Chiaiano protesting against a proposed rubbish dump at a nearby stone quarry. Mr Berlusconi, elected prime Minister for the third time last month, vowed at last week’s Cabinet meeting in Naples to use the army to thwart both the Camorra and local protesters by making rubbish dumps into “military zones”, with jail sentences of up to five years for those “obstructing” waste disposal. Ten new landfill sites were later named. However both Roberto Maroni, the Interior Minister, and military officials have expressed doubts over the proposed use of the army to quell civil disturbances.

A temporary “truce” has taken hold at Chiaino - which is close to a hospital - after the government offered “dialogue” with local people over environmental and health implications. However Mr Berlusconi said “The state cannot give up, the problem of the rubbish must be resolved. Blockade actions will not be tolerated”.

Offically there are 5000 tonnes of refuse in the streets of Naples and 50,000 tonnes in the Campania region, but this is almost certainly an underestimate. Ealier this month the European Commission took Italy to the European Court of Justice because it had failed to devise, let alone implement, a “coherent plan” to resolve the crisis.

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