PRAGUE: Czech Prime Minister Petr Necas resigned on Monday over a bribery and spying scandal involving his top aide that has plunged the recession-hit EU state into a fresh political crisis.

"Mr President, in line with the constitution... I resign," Necas told his rival President Milos Zeman, who called for talks with political parties from Friday to discuss the government's future.

Zeman asked the rightwing Necas, who has been in office for just three years at the head of a shaky coalition government, to stay on as caretaker leader until a new administration is named.

The crisis was sparked by the indictment on Friday of Necas's chief of staff -- and alleged lover -- Jana Nagyova on charges of bribery and complicity in the abuse of power.

Police accuse her of asking military spies to tail Necas's estranged wife Radka. The 48-year-old premier announced earlier last week that his marriage was over after 25 years.

Seven other senior figures including military intelligence heads and former lawmakers have also been charged with corruption and abuse of power.

The massive graft scandal erupted Thursday when police raided the cabinet office, defence ministry, villas and a bank in a dramatic swoop which turned up large stashes of cash and gold.

The leftwing Zeman said he would hold talks with party leaders from Friday to Sunday.

Under the constitution, the veteran politician and former prime minister has the power to decide on a new government or call snap elections.

An EU member of 10.5 million people, theCzechRepublichas been plagued by corruption since it emerged as an independent state after its 1993 split withSlovakia.

Last year, corruption watchdog Transparency International ranked theCzechRepublicas worse thanCosta RicaandRwanda.

Necas's minority three-party coalition government has survived eight confidence motions in parliament since taking office in July 2010.

His right-wing Civic Democrats party has made it clear it would try to find a new prime minister in the days to come to avoid early elections, which opinion polls show it would lose.

Before the scandal erupted last week, Zeman had said he wanted general elections to be held together with an EU Parliament vote on May 24-25 next year to save taxpayers' money.

Himself an ex-premier with political roots in the communist era, Zeman has been head of state since March following a presidential election in January.

Zeman has made it clear that he favours the left-wing Social Democrat opposition, which opinion polls show will win any snap election.

The next regular polls are scheduled for May 2014. If Zeman fails to name a new prime minister, early elections could be held within 60 days after parliament is dissolved.

Necas, a fiscal hawk, also stepped down as chairman of his rightwing Civic Democrats (ODS) party on Monday.

Financial markets shrugged off the political firestorm, having become accustomed to the instability plaguing Necas's government.

"Mr Necas' resignation means that the Czech ruling coalition is now attempting to muster a coalition to continue governing and avoid fresh elections," said William Jackson, an analyst with the London-based Capital Economics.

"Given that the coalition only held 100 of the 200 seats in parliament, and relied on independents to govern, there is a fair amount of uncertainty about the outcome," Jackson said in a statement.

Necas started off with 118 votes in the 200-seat parliament in July 2010, before seeing his majority dwindle over a series of corruption scandals and party infighting.

The ODS is partnered with the smaller TOP 09 and the centrist LIDEM.

Despite the turmoil, all sides -- including the left-wing opposition -- have agreed to ensure a smooth political transition to allow for the clean-up of devastating flood damage in the country. At least 12 people perished and around 19,000 were forced from their homes.

The scandal comes as the country continues to struggle financially. Heavily dependent on car production and exports to the crisis-hit eurozone, the Czech economy has been locked in a record-long recession lasting six straight quarters.