Australia PM escalates car spat

Mr Rudd has called in the police to investigate the e-mail he says is fake

Australian Prime Minister Kevin Rudd has challenged the opposition to prove claims that he abused his position to help a friend's car-dealing business.

Mr Rudd said opposition leader Malcolm Turnbull must resign if he fails to produce an e-mail on which the claims are based by Monday afternoon.

Mr Turnbull has called for the prime minister to stand down, accusing him of lying to parliament over the issue.

Analysts say it is the biggest test Mr Rudd has faced since he was elected.

The row has been brewing for weeks, since it emerged that car dealer John Grant lent a car to Mr Rudd for use in his constituency.

Mr Grant is a friend and neighbour of the prime minister, and opposition politicians believe Mr Rudd tried to help him secure money from a Treasury fund called OzCar to help his business.

Rudd warning

On Friday Treasury official Godwin Grech told a Senate committee he thought he could remember receiving an e-mail regarding funding for the car salesman.

An e-mail then surfaced in Australia's Daily Telegraph newspaper purporting to contain that exact request from the prime minister's office.

"Hi Godwin, the PM has asked if the car dealer financing vehicle is available to assist a Queensland dealership, John Grant Motors, who seems to be having trouble getting finance," the alleged e-mail said.

"If you can follow up on this Asap that would be very useful."

Mr Rudd, however, says the e-mail is fake and has asked the police to investigate.

He also issued a stark warning to the leader of the opposition.

"If when parliament resumes in 24 hours Mr Turnbull fails to produce this e-mail, this e-mail upon which his entire case against the government is based, for authentication, he has no alternative but to stand in the parliament, apologise and to resign," he said.

Mr Rudd and his Treasurer Wayne Swan have both denied in parliament trying to help Mr Grant obtain funds.

Mr Turnbull said they both misled parliament and have to quit.