TAIPEI - TAIWAN'S defence minister resigned on Saturday as the government backed down on a controversial plan to invest in a new company set up to handle its arms imports.

Lee Tien-yu quit after opposition lawmakers accused members of the ruling Democratic Progressive Party of seeking to profit from the company, Taiwan Goal, which is headed by DPP heavyweight Wu Nai-jen.

'I deeply regret that the establishment of Taiwan Goal caused concerns and doubts in various sectors and I hereby tender my resignation,' he said in a brief statement.

'Collaborating with private companies would have helped boost the defence industry, but it has been stigmatised. The premier has instructed that... (the defence ministry) will not invest in Taiwan Goal or other companies of its kind,' said cabinet spokesman Chen Chin-chun.

Taiwan Goal will reportedly handle the government's estimated US$150-billion purchase of PC-3 anti-submarine aircraft, attack helicopters and transport planes from the US.

 Local media said the deal was expected to generate US$50 billion in business for the company.

The United States remains Taiwan's leading arms supplier despite its switch of diplomatic recognition from Taipei to Beijing in 1979.

Opposition presidential hopeful Ma Ying-jeou earlier on Saturday urged the DPP to clarify its involvement in the firm.

'The government should refrain from making any major decision which would have a serious impact in the future between now and May 20', when President Chen Shui-bian's second and final term ends, Mr Ma told reporters.

Mr Ma is vying with DPP's Frank Hsieh to succeed Chen in the March 22 presidential vote.

Taiwan and China split in 1949 after a civil war, but Beijing has repeatedly threatened to invade the island should it declare formal independence, prompting the island to acquire advanced weaponry. -- AFP