EAST Timorese Deputy Prime Minister Mario Carrascalao resigned overnight over corruption after a public row with Prime Minister Xanana Gusmao about alleged graft in the finance ministry.
Mr Carrascalao said he could not tolerate being publicly insulted for blowing the whistle on "rampant" corruption.
The prime minister reportedly called Mr Carrascalao, 73, a "stupid liar" after the deputy accused Mr Gusmao of involvement in efforts to embezzle supplies of public funds to the government.
"After 73 years, for the first time in my life, somebody called me a 'stupid liar'. As a normal citizen, I responded by resigning as deputy prime minister," he said after submitting his resignation to Mr Gusmao.
"The corruption, collusion and nepotism remain rampant and the [corrupt] are protected in a mutual way. Many have spoken about corruption eradication but only a few have good intentions and remain on the front line."
The government issued a lengthy statement rejecting Mr Carrascalao's allegations and accusing him of incompetence.
It said the deputy prime minister had demonstrated a "lack of understanding of simple budget concepts" when he refused to sign off on the supply of funds for government purchases due to concerns over graft.
"The government deeply regrets that Deputy Prime Minister Mario Carrascalao has made unsubstantiated allegations about corruption," it said.
East Timor has a population of around 1.1 million people and remains heavily dependent on international aid eight years after achieving formal independence from Indonesia.
Mr Gusmao pledged to invest more of the country's oil wealth to boost growth and living standards, despite laws which allow only three per cent of petroleum revenues to be withdrawn each year.