By Randy Fabi
JAKARTA (Reuters) - The deputy chief of Indonesia's anti-graft agency submitted his resignation letter on Monday after being named a police suspect, worsening a two-week long feud between the two rival law enforcement agencies.
In his biggest test since taking office in October, President Joko Widodo has struggled to halt rising tensions between the widely popular Corruption Eradication Commission (KPK) and the graft-tainted police.
The dispute has started to worry investors in Southeast Asia's largest economy, helping to pressure the rupiah and Indonesian stocks.
"The conflict between the KPK and the police shows that Indonesia's government is weak. It gives a negative perception to investors," said Norico Gaman, head of research at BNI Securities.
Bambang Widjojanto offered to resign his post as KPK's deputy chief, three days after police detained and questioned him over a false testimony case dating from 2010. [ID:nL4N0V23DY]
"Whenever a KPK commissioner is announced as a suspect, he is to resign temporarily. I bow to the constitution, to the law and to the benefit of the people," he told reporters.
His resignation letter must now be approved by the head of the agency, Abraham Samad, who said on Saturday he would refuse such a request.
Widjojanto has denied the police allegations.
"I believe my case is a set up because I used my authority as a law enforcement officer to declare someone as a suspect," Widjojanto, who is one of four KPK commissioners, said without naming the suspect.
KPK supporters believe Widjojanto was detained by police in retaliation for the agency's decision to declare police general Budi Gunawan a bribery suspect on Jan. 13. Gunawan denies the allegations.
That announcement led Widodo to delay Gunawan's appointment as the next police chief. Widodo has yet to decide on whether to appoint Gunawan, prompting rare protests from anti-graft fighters and grassroots supporters that helped elect him last year.
Police tried to arrest top members of the anti-graft agency in 2009 and 2012. On both occasions their actions occurred shortly after top police officers were hauled in for questioning in corruption investigations. The police backed down in both instances after protests from KPK supporters. [ID:nL4N0J31FQ]
(Additional reporting by Kanupriya Kapoor and Fransiska Nangoy in JAKARTA; Editing by Jeremy Laurence)