Rumours swirled over the fate of France's damaged prime minister Dominique de Villepin Monday, despite weekend denials from President Jacques Chirac that any reshuffle is planned in reaction to the dirty tricks scandal known as the Clearstream affair.

With a demoralised government plunging in the polls following claims of an internecine smear campaign, the future of the 52 year-old prime minister remained deeply uncertain after he was accused last week of lying to cover up his own alleged role.

Paris newspapers all carried speculation that Chirac could nominate Villepin's arch-rival - Interior Minister and ruling Union for a Popular Movement (UMP) chief Nicolas Sarkozy - to replace him if the political damage from the Clearstream scandal gets any worse.

Sarkozy, 51, who is the leading right-wing candidate for next year's presidential elections, was said by colleagues to be reluctant to take on what is widely seen as the poisoned chalice of French politics, but might feel duty-bound to accept the prime minister's job if he was offered it. Patrick Devedjian, a UMP deputy who is close to the interior minister, said Monday that Sarkozy would only agree to take on the post if he was allowed a free hand to carry out his own radical platform of reforms.

"Nicolas Sarkozy will have to implement his own project, in a way bringing forward the 'rupture' which he envisages for 2007 if he is elected president of the Republic," Devedjian told Le Monde newspaper.

A complex and sordid story of bogus corruption claims directed at Sarkozy as well as other French personalities, the Clearstream affair has cast the government into disarray at the start of Chirac's last year in office - offering an unhoped-for boon for the opposition Socialist Party (PS).

Last week the prime minister was forced onto the defensive over the leaked testimony of a senior intelligence official, who said that in January 2004 Villepin - then foreign minister - ordered him to conduct a secret enquiry into a list of alleged account-holders at the Clearstream bank in Luxembourg.

Sarkozy - whose name was on the list - believes he was the victim of a campaign to blacken his name ahead of the 2007 presidential race. His entourage suspects Villepin - if not of starting the false allegations - at least of exploiting them for his own ends.

Last week the government's internal divisions widened further when Defence Minister Mich