Three or four men in camouflage gear sprayed Mr Argana's jeep with bullets on Tuesday morning as he was going to his office in the capital Asuncion. The vice-president and his bodyguard were fatally wounded. His driver was also seriously injured.

President Cubas, who took office last August, appealed for calm and ordered Paraguay's borders to be sealed. All flights to and from the country were stopped as police launched the hunt for the assassins.

President Cubas appealed for calm

However Congress blamed the developments on Mr Cubas and his ally, the former army chief Lino Oviedo - who was imprisoned for his part in a 1996 attempt to overthrow the previous president, Juan Carlos Wasmosy.

"This forms part of a terrorist plan harboured and encouraged by the government ... to install a dictatorship," Congress said in a statement.

It said it blamed "President Raul Cubas, and his accomplice, the coup leader Lino Oviedo for the perpetration of this political crime."

President Cubas rejected the accusations against him. "I find it deplorable that any political group would use this tragedy to gain an advantage," he said.

James Reynolds: "Assassination has worsened Paraguay's already critical political situation"

General Oviedo also denied involvement. He said he regretted Mr Argana's death and expressed condolences to his family.

"This unfortunate event darkens my heart," the former army chief said in a statement in which he called the killers "terrorists."

Several hundred people demonstrated outside the presidential palace demanding Mr Cubas' resignation, but police used water cannon to disperse them.

Political infighting

The assassination is the latest blow to a nation torn by a power struggle in the Colorado Party that has ruled it for half a century.

Months of bitter political infighting culminated in the decision last Thursday by Congress to begin impeachment hearings against the president.

Vice President Argana after voting in 1997 elections

He is accused of abusing his power by ordering the release from jail of his ally - General Oviedo.

The head of the country's supreme court ordered President Cubas to send the general back to prison, but the president refused.

The release of the general led to a split within the Colorado party, with rival factions supporting Mr Cubas and Mr Argana.

President Raul Cubas had accused Mr Argana of trying to oust him. If the impeachment had resulted in Mr Cubas being removed from office, Mr Argana would have taken over the presidency.

President's brother steps in

In the first political fallout from the assassination, Interior Minister Ruben Arias Mendoza left his post, giving no explanation for his departure. He was replaced by Carlos Cubas, the president's brother.

President Cubas said his brother would head the investigation into Mr Argana's death.

Condemnation of the assassination of the vice-president poured in from the United States and Paraguay's Latin American neighbours.

"The United States strongly condemns the murder of Vice-President Argana. There is absolutely no place for violence in the democratic process," said US State Department spokesman James Rubin.