UPDATE 1-Italy PM ousts junior League minister over graft case

Italian Prime Minister Giuseppe Conte on Wednesday dismissed a junior minister involved in a graft scandal despite resistance from the League party which had backed the official, who is a senior party member. The issue has created fierce tensions between the far-right League and its coalition partner, the anti-establishment 5-Star Movement, threatening to pull the alliance apart as the two parties compete ahead of this month's European Union elections.

Armando Siri, a transport ministry undersecretary and economic adviser to League chief Matteo Salvini, was put under investigation last month for allegedly accepting a bribe from a wind farm entrepreneur who has been linked to the Mafia. Both Siri and the businessman have denied any wrongdoing.

5-Star, whose support is based on a squeaky-clean image and a hard-line against corruption, had insisted that Siri should go, while Salvini argued that he should remain in government until proven guilty in court. Relations between 5-Star and the League have deteriorated in the run-up to the May 26 EU vote, with the two parties acting more like bitter political enemies than cabinet allies.

The tensions have pushed up the state's borrowing costs, with the gap between Italian benchmark bond yields and safer German Bunds widening on Wednesday to its highest level in more than two months. Speaking after the cabinet meeting that decided Siri's fate, 5-Star leader Luigi Di Maio said he was "very proud of the decision," and insisted the coalition would remain in power for a further four years despite the internal strife.

"It is not a victory for the 5-Star Movement, but for Italians," Di Maio told reporters, adding that corruption was a "national emergency" that had to be tackled head on. There was no immediate word from Salvini, but a League source said the party had reiterated its support for Conte even though it dissented with the decision to oust Siri.

Conte, a former academic who is close to 5-Star, said the cabinet meeting had been "open and loyal". There was no immediate comment from Siri, who remains a member of the upper house Senate after losing his government role. (Reporting by Giuseppe Fonte and Angelo Amante, writing by Gavin Jones; Editing by Crispian Balmer )