Hong Kong, July 12, 2012 (AFP) - Hong Kong's anti-corruption watchdog said Thursday it had arrested a minister for allegedly abusing his housing allowances, as the city's new government was rocked by its first major scandal.

The Independent Commission Against Corruption (ICAC) said it had arrested four people including a minister and a senior civil servant for allegedly violating their government housing allowances.

Public broadcaster RTHK identified the officials as development minister Mak Chai-kwong and Tsang King-man, an assistant highways director. An ICAC spokesman declined to comment when contacted by AFP.

The arrest came shortly after officials said Mak, who only last week took charge of a portfolio overseeing housing matters, had resigned with immediate effect.

The 62-year-old minister has been dogged by allegations that he and Tsang misused public funds for "cross-leasing" flats to each other in the 1980s while both were claiming a government housing allowance.

Chinese-language newspaper Apple Daily News cited land registry documents to show they had bought adjacent flats and leased them to each other.

It said Mak had claimed a total of HK$250,000 ($32,250) in civil service tenancy allowances from 1986 to 1988, but the minister has denied any wrongdoing.

"I gave (the civil service bureau) all the facts, and I don't think I breached any regulation," Mak told local radio according to The Standard daily.

"I have followed regulations and I don't think the matter involves my personal integrity," he added.

The scandal is a blow to newly installed leader Leung Chun-ying, who took power as chief executive on July 1 after promising to restore government integrity in the eyes of an increasingly sceptical public.

Leung has faced calls for his resignation and a legal challenge to his rule over his failure to declare illegal structures at his home, a sensitive issue in the crowded southern city of seven million people.

His predecessor, Donald Tsang, ended his term in disgrace after admitting to accepting inappropriate gifts from powerful tycoons in the form of trips on luxury yachts and private jets.

Three of the city's richest men, the property developing Kwok brothers, have also been arrested on suspicion of corruption in a case also involving a former top bureaucrat in Tsang's government.