Tom DeLay, one of the most powerful politicians in America, was today facing new charges of money laundering in an escalating criminal case which has far-reaching implications for President Bush's second term.

A Texas grand jury lodged a new indictment against the former House Majority Leader just hours after his defence team applied to have a similar charge brought last week struck out on a technicality.

It is alleged that Mr DeLay and two political associates converted $190,000 in corporate donations into individual campaign contributions to escape a state ban on businesses funding political parties.

Mr DeLay was forced temporarily to step down from his position as Mr Bush's second most powerful representative on Capitol Hill to fight the earlier charge of conspiracy to break campaign finance laws.

His lawyers last night argued that the indictment should be dismissed since the law did not come into force until 2003 - a year after the alleged acts.

The latest indictment carries a far stiffer penalty than the one handed down last week.

If convicted on the money-laundering charge, Mr DeLay would face a sentence from up to five years' probation to life in prison, and a fine of up to $10,000. Conspiracy to commit money laundering is punishable by up to 20 years in prison and a fine of up to $10,000.

By contrast, the original indictment carried a sentence of two years in a state jail and a fine of up to $10,000.

The substitute charges do allow his legal team to mount a challenge on grounds that they are politically motivated.

It is alleged that Mr Delay evaded a state ban on corporate contributions by funnelling donations through a political action committee, Texans for a Republican Majority, to the Republican National Committee (RNC) in Washington. The RNC then sent back equal amounts to distribute to Texas candidates in 2002, the indictment alleges.

The indictment, from District Attorney Ronnie Earle, alleges that Mr DeLay knowingly aided the transfer of the corporate money to help the Republicans win a majority in the Texas Legislature.

Once the Republicans had secured control of the legislature, state lawmakers are alleged to have gerrymandered the boundaries to give Republicans a stronger grasp on the House of Representatives as well.

Mr DeLay immediately issued a statement that described the renewed charges as a "witch-hunt".

"Ronnie Earle has stooped to a new low with his brand of prosecutorial abuse," he said.

"He is trying to pull the legal equivalent of a 'do-over' since he knows very well that the charges he brought against me last week are totally manufactured and illegitimate. This is an abomination of justice."

It was unclear when Mr DeLay would appear in court to face the new charges. No arraignment date had been set.

Mr DeLay's associates, John Colyandro of Austin and Jim Ellis of Washington, were each previously indicted on charges of conspiracy to violate campaign finance laws and money laundering.

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