UPDATE 4-Spain corruption scandal turns up heat on PM Rajoy
* PM Rajoy allegedly received secret payments - El Pais
* Ruling PP party says all party payments are legal
* Report is latest twist in PP corruption scandal
* Hundreds gather to protest outside PP headquarters (Adds protests)
By Fiona Ortiz and Iciar Reinlein
MADRID, Jan 31 (Reuters) - Spain's ruling People's Party denied on Thursday that Prime Minister Mariano Rajoy and other leaders received payments from a slush fund after a newspaper published what it said were secret party accounts.
El Pais published images of excerpts of almost two decades of handwritten accounts that it said were maintained by People's Party treasurers. The newspaper said the accounts showed 11 years of payments to Rajoy of 25,200 euros ($34,200) a year.
The accounts - which El Pais said amounted to a parallel unofficial bookkeeping system - indicate donations from companies, mostly builders, and regular payments of thousands of euros to a number of party leaders.
The report is the latest twist in a scandal that has damaged the credibility of 57-year-old Rajoy as he battles a deep recession and one of Europe's highest unemployment levels.
Rajoy - a longtime politician widely thought of as boring but honest - has demanded sacrifices of Spaniards as he slashed public spending to avert a fiscal crisis that could push Spain into an international bailout.
"The People's Party only has one set of accounts and it is clean, transparent and submitted to the official accounting authority," PP Secretary General Maria Dolores de Cospedal told a news conference, denying allegations of corruption in El Pais.
"We have absolutely nothing to hide."
Hundreds of Spaniards gathered outside party headquarters in central Madrid on Thursday evening in peaceful protests, chanting 'Thieves!' and bearing placards reading 'Resign Now!'.
Cospedal was one of many top party officials, along with former Economy Minister and IMF chief Rodrigo Rato, named by El Pais as receiving secret payments. Rato did not immediately respond to a request for comment.
An earlier statement by the PP said the party's payments to its leaders and staff were always legal and followed tax rules. The party also denied there were systematic payments to people other than their official paychecks.
A spokeswoman from Rajoy's office told Reuters the prime minister - who has been in office just over a year - stood by comments he has made recently that he has not engaged in improper conduct.
High Court Judge Pablo Ruz, who is investigating a four-year-old corruption case involving the PP, has asked prosecutors to look into the new allegations and could open another line of investigation, court sources told Reuters.
The party has ordered an external audit of its accounts.
A recent poll by Metroscopia showed that 96 percent of Spaniards believe corruption is widespread in politics in Spain, after dozens of cases emerged in recent years, most notably an ongoing judicial investigation into alleged embezzlement of public funds by King Juan Carlos' son-in-law.
"This does not help to calm down the difficult moments that we are going through, economically, politically and the climate on the street. This is a time for maximum transparency," Jose Antonio Monago, the president of the region of Extremadura, told reporters at a news conference unrelated to the party scandal.
The alleged payments may not necessarily be illegal if the party leaders declared the income in tax statements.
Until recently, Spanish political parties were allowed to receive anonymous donations. However, it would have been illegal not to book those donations in the party's official, regulated accounts, a People's Party source told Reuters.
A People's Party source, who asked not to be named, said the allegations, if confirmed, raise serious ethical questions about party operations, especially because many of them occurred during Spain's building boom, in which politicians granted large numbers of development contracts.
"It looks like bribes, the nature of the document is very incriminating, if it's true," the source said.
Among the companies named in the El Pais story is builder and infrastructure and energy company FCC. FCC declined to comment. A source close to the company told Reuters that FCC would carry out an internal investigation regarding possible donations.
El Pais also said the president of another builder, OHL , Juan Miguel Villar Mir, was one of the donors. OHL declined to comment.
The accounts published in El Pais were allegedly from two former PP treasurers. One of them is Luis Barcenas, who stepped down as party treasurer in 2009 when judges began to investigate his possible involvement in alleged illegal payments and kickbacks to party officials from builders and other businesses which won government contracts.
The ongoing judicial investigation of Barcenas has revealed recently that he had a Swiss bank account which at one point held as much as 22 million euros. His lawyer has said previously the money was from legitimate businesses and Barcenas has now declared taxes on the income.
Press officials from Spain's High Court confirmed that Barcenas' lawyer has provided a document to the court showing that in 2012 his company applied for a tax amnesty on funds in the Swiss bank account.
In a statement provided to EFE news agency, Barcenas said the El Pais report was false and he had not maintained a secret set of books or made any payment that was not reported in the party's official accounts.
($1 = 0.7370 euros) (Additional reporting by Jose Elias Rodriguez, Blanca Rodriguez and Iciar Reinlein; Editing by Tracy Rucinski and Sophie Hares)