Madrid  - As jobless numbers swell in a Spain sinking into a deepening recession, the opposition could be expected to have a heyday lambasting the government.

Instead, however, the main opposition conservative People's Party (PP) is getting bogged down with a mysterious internal spying scandal apparently linked to a ruthless power struggle.

The party that governed Spain from 1996 to 2004 under prime minister Jose Maria Aznar has become increasingly divided after new leader Mariano Rajoy lost two successive elections to Socialist Jose Luis Rodriguez Zapatero, the current prime minister.

Rajoy's weakened position has set the stage for what is widely seen as a ferocious power struggle between two Madrid politicians vying to step into his shoes: Madrid regional Prime Minister Esperanza Aguirre and mayor Alberto Ruiz-Gallardon.

"Iron lady" Aguirre is one of the top party hawks, while Ruiz- Gallardon belongs to the moderate camp, and is regarded as something of an outsider within the party.

Both politicians have won successive elections with flying colours, and both can see themselves as the next prime minister.

The long-running rivalry was uncovered once again when the daily El Pais began reporting on strange happenings allegedly occurring in Madrid.

Aguirre's regional Interior Minister Francisco Granados had created a secret intelligence service comprising former police officers, who spied on officials and politicians, the daily claimed.

Those who had allegedly been spied on included Ruiz-Gallardon's deputy and one of Aguirre's own senior officials, whom she sacked shortly afterwards for being too close to Rajoy.

Spies allegedly followed and photographed their targets, taking detailed notes on their movements and meetings, some of which were reproduced by El Pais.

On one occasion, the spies even stole a computer containing documents from an office.

The espionage reportedly occurred in 2008 at the time of a covert struggle between Aguirre and Ruiz-Gallardon to succeed Rajoy, who later reinforced his position and was re-elected PP leader at a party congress.

The spies may have been trying to find out who was allied with whom, and to uncover financial irregularities or other wrongdoing that could be used against political rivals, analysts have suggested.

The regional government had no authority to create an intelligence service or a "parapolice force," let alone with taxpayers' money, El Pais said in an editorial.

Ruiz-Gallardon made it clear he did not doubt the veracity of the El Pais report, while Aguirre and Granados denied any knowledge of espionage within the regional government.

The affair had meanwhile become even more confusing, as it came out that Aguirre's deputy Ignacio Gonzalez had also been spied on during trips to Colombia and South Africa.

Had Ruiz-Gallardon also created a parapolice force to spy on rivals, as the daily El Mundo and Aguirre indirectly suggested?

Had Aguirre's officials spied on rivals within their own camp?

Or was it all just a battle between corrupt PP clans trying to obtain public contracts for companies they were linked with, as El Mundo suggested on Wednesday?

A PP spokesman even tried to implicate the Zapatero government, which was quick to deny any involvement.

Prosecutors and a judge are now investigating the spying allegations, which Rajoy described as "very serious" when finally speaking out several days after the scandal broke.

Rajoy appointed PP spokeswoman Dolores de Cospedal to carry out an internal investigation within the party, and at least some heads are expected to roll.

When that happens, "we will know which part of the elite has won," political science professor Antonio Diaz Fernandez wrote.

Whoever the winner is, however, the scandal has undoubtedly undermined the credibility of the PP at a time when two key regional elections are coming up on March 1. (dpa)