By Stanley White and Linda Sieg
TOKYO (Reuters) - Japan's Finance Ministry proposed crafting a cover story with a school operator at the heart of a political scandal to justify a discount in the price of public land sold to the school, a ministry official said on Monday.
The admission is likely to increase opposition parties' calls for Prime Minister Shinzo Abe to resign over the scandal involving the sale of state-owned land to the school operator, Moritomo Gakuen, which had ties to Abe's wife.
The affair, along with other government missteps, is clouding Abe's chance of winning a third three-year term as leader of his Liberal Democratic Party. Victory in a September party vote would put him on track to become Japan's longest serving premier as long as his coalition controls parliament.
"Last year, on Feb. 20, a finance bureau employee contacted Moritomo Gakuen's lawyer ... and suggested saying a lot of money was spent on the removal of rubbish and thousands of trucks were used," Mitsuru Ota, head of the Finance Ministry's finance bureau, told parliament.
"Moritomo's lawyer did not take any action on this phone call. It was wrong for us to ask Moritomo Gakuen to say something that was not true," Ota said, adding that the attempt to cook up a story was "highly embarrassing".
Following reports of the cover story, Abe on Monday repeated earlier statements in parliament that he and his wife were not involved in the land sale and said there is no evidence indicating they were involved. Abe has also said in the past he would resign if he or his wife were found to be involved.
Ota's comments confirmed a report by public broadcaster NHK last week and followed a March 12 admission by the ministry that it had altered documents relating to the land sale.
The plot of land in Japan's western region of Osaka was appraised to be worth 956 million yen ($8.95 million) but the ministry granted the school operator an 820 million yen discount.
It originally said the sale was appropriate and was heavily discounted to offset the costs of removing a lot of rubbish buried on the plot.
Prosecutors in Osaka arrested the school operator and his wife in July last year on suspicion of illegally receiving government subsidies.
The National Board of Audit, which is independent of the cabinet and has the authority to investigate spending by government agencies, said in November there was not enough evidence to support the heavy discount.
That fuelled speculation that the school operator used his ties with the prime minister's wife to secure the discount.
The fresh revelation comes soon after another scandal that is eroding Abe's support rates. Last week, the defence minister said the army had found activity logs last year from a controversial 2004 to 2006 deployment to Iraq, but had failed to report them to his predecessor.
Abe has apologised for the defence ministry's failure to disclose activity logs.
A survey by NHK published on Monday showed the share of voters who disapproved of Abe's cabinet rose seven points to 45 percent, while the number of supporters fell six points to 38 percent, the first negative rating in six months.
(Editing by Sam Holmes and Clarence Fernandez)