UPDATE 1-Maltese businessman accuses former top official in murder case -sources

A prominent Maltese businessman has told police that former government chief of staff Keith Schembri was the mastermind behind the 2017 murder of journalist Daphne Caruana Galizia, two people briefed on the investigation said on Thursday.

Schembri was arrested on Tuesday in connection with the case. He has not issued any statement since his detention but has previously always denied any connection to the killing of Caruana Galizia, who wrote extensively about corruption. Schembri's lawyers were not available for comment on Thursday when contacted by Reuters for comment.

Maltese Prime Minister Joseph Muscat, a close personal friend of Schembri, told reporters he hoped the murder investigation would be wrapped up within "the next few hours". Caruana Galizia's killing by a car bomb near her home shone a spotlight on corruption in the EU's smallest country. Three men were charged with planting the bomb and are awaiting trial, but authorities have so far been unable to say who hired them.

The two-year-old investigation has accelerated dramatically this month after fresh evidence was uncovered, leading to the arrest last week of businessman Yorgen Fenech, who was stopped as he tried to leave Malta on his luxury yacht. According to police and legal sources with direct knowledge of the probe, Fenech is seeking legal immunity in return for testimony that would implicate Schembri and reveal a wide scheme of corruption on the island implicating senior politicians.

A pardon can be issued only by the president, on the recommendation of Muscat's cabinet. President George Vella cancelled a trip to London next week because of the crisis, while Muscat pulled out of an event on Thursday evening. The sources did not indicate whether Fenech had provided any evidence to suggest that Schembri had masterminded Caruana Galizia's murder, and there was no indication whether a potentially controversial pardon might be forthcoming.

Neither Fenech nor his lawyers have made any public comment since his arrest. PRESSURE TO QUIT

Muscat repeatedly dismissed accusations of wrongdoing levelled at his inner circle over the past few years and is now facing growing calls to resign because of his alleged failure to hold friends and colleagues to account. His tourism minister quit earlier this week while the economy minister suspended himself from the government as the murder probe continued. Both denied involvement in the case.

Adrian Delia, the head of the opposition Nationalist Party, met the president on Thursday to demand that Muscat stand down. "I told the president this afternoon that with every hour of inaction our country's reputation is suffering irreparable harm," Delia told reporters.

Muscat has so far refused to leave office, saying on Tuesday that Malta needed stability during this "turbulent time". The government has already granted a pardon in the case to Melvin Theuma, the alleged middleman in the plot, who was arrested two weeks ago in a money-laundering investigation and immediately offered information on the Caruana Galizia murder.

One of the men accused of planting the bomb has told investigators the three were paid 150,000 euros ($165,000) for the hit, according to a Reuters report. Caruana Galizia had revealed the existence of a secret company owned by Fenech, who is involved in property, gambling and energy businesses. The secret company was named in emails as being a vehicle for depositing money into accounts of Panama firms owned by ex-Tourism Minister Konrad Mizzi and Schembri.

There is no evidence that money changed hands and Mizzi has said there are no links between him and Fenech's company. 

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