Orsoni, pictured above, was arrested last week on accusations he and others received kickbacks from a consortium building flood barriers in Venice.

Police said they had traced at least 20 million euros ($27 million) from contractors from the "Moses" project to foreign bank accounts allegedly used for financing political parties.

The ambitious barrier project began in 2003 but has suffered major delays and a huge cost blow-out, and is currently expected to be finished by 2016.

Orsoni indicated on Friday he had lost the support of Prime Minister Matteo Renzi's Democratic Party (PD), which he represented at his election in 2010. Orsoni has said he was unaware that any donations to his campaign were illegal.

His resignation will become official in 20 days. Orsoni's stepping down comes a day after he was released from house arrest under a plea deal linked to the scandal, in which he accepted a four-month suspended sentence.

New elections

The left-wing mayor told reporters his whole local government team would resign, paving the way for new elections in Venice.

"I have made many enemies and maybe this is the price I am paying," Orsoni said on Friday.

The scandal is just one of several kickback investigations that are heaping pressure on Premier Renzi. There are ongoing investigations into the Milan Expo 2015, reconstruction in L'Aquila following the 2009 earthquake, and preparations for Italy's hosting of the G8 summit, also in 2009.

Renzi is expected on Friday to enhance the powers of a newly appointed anti-corruption commissioner.

jr/ng (AP, Reuters, AFP)