President, Mr Nicolas Sarkozy, firmly rejected on Monday allegations that he took illegal cash donations from France's richest woman, declaring "France is not a corrupt country."
Sarkozy backed the labour minister, Mr Eric Woerth, accused of accepting 150,000 euros ($190,000) from L'Oreal heiress Liliane Bettencourt as chief fundraiser for the 2007 campaign.
"France is not a corrupt country," the president declared in a prime time interview on French television. "The political class, left and right alike, is in general honest. French public officials are people of great rigour."
The three-week scandal has weakened Sarkozy, whose poll ratings have hit their lowest level since he took office in 2007 and who is fighting a difficult battle on pension reform, a centrepiece of his political agenda.
Mr Sarkozy said it was a disgrace to accuse him of visiting Bettencourt's home to pick up illegal cash donations, and suggested those behind the allegations were taking part in "defamation, a campaign."
"I was described as someone who for 20 years has been going to Mrs Bettencourt's house to pick up envelopes. It's shameful," he said.
The President insisted Woerth will stay on as labour minister to enact pension reform, going before cabinet on Tuesday to present a bill raising the retirement age from 60 to 62 before it heads to parliament in September.
"Eric Woerth is an honest man, a competent man. He enjoys my full confidence," Sarkozy said, during the interview broadcast on state television from the gardens of the Elysee presidential palace.
But Mr Sarkozy said he would advise Woerth to step down as treasurer of the majority UMP party to "devote himself exclusively to pension reform."
And, in a gesture to critics who say Woerth's party and ministerial roles are incompatible, Sarkozy said he wanted a cross-party commission to draft guidelines "to avoid in the future any form of conflict of interest."
The uproar over conflict of interest targeted Woerth because his wife helped manage the billionaire's 17-billion-euro wealth at a time when he was budget minister, tasked with fighting tax dodgers.
Mr Sarkozy argued that if money had been his prime motivation, he would have chosen "another career than politics, serving my country, as I have over the last 35 years."
He spoke after police searched seven homes and offices including that of a friend to Bettencourt as part of several probes involving the billionaire, from a family feud to allegations of illegal campaign financing.
Police from the financial crimes unit raided the Paris apartment of photographer Francois-Marie Banier, who stands accused by Bettencourt's daughter of making millions by taking advantage of her mother's frailty.
The multi-layered affair started when a website in June published reports of conversations secretly recorded by Bettencourt's butler, which revealed that the L'Oreal heiress plotted to evade taxes.
The minister said on Monday he is considering stepping down as chief fundraiser for Sarkozy's governing UMP to put an end to the conflict of interest claims.
Bettencourt, heiress to the L'Oreal cosmetics fortune, allegedly discussed political donations to the UMP with her financial adviser in the tapes released last month.
The 87-year-old is France's richest woman and ranks 17th on the Forbes list of the world's wealthiest people.
She was also one of the biggest beneficiaries of a tax break for the wealthy passed by Sarkozy after he won the 2007 election, receiving a lawful 30-million-euro rebate.
Ahead of the television appearance, an internal government report was released stating there was no evidence that Woerth intervened to protect Bettencourt's affairs from scrutiny by tax inspectors.
But the opposition Socialist Party demanded an independent investigative magistrate be appointed to probe all the allegations surrounding the Bettencourt fortune.
Sarkozy "is the main obstacle in the way of independent justice. He is the main obstacle to allowing truth to emerge," said Socialist Party spokesman Benoit Hamon.