* Lieberman says wants to settle legal case before election
* Law permits him to run for Knesset in January vote
By Maayan Lubell
JERUSALEM, Dec 14 (Reuters) - Israeli Foreign Minister Avigdor Lieberman resigned on Friday after being charged with fraud and breach of trust, a move that could impact on January's election which his party, merged with Prime Minister Benjamin Netanyahu's Likud, was tipped to win.
Israel's Justice Ministry said on Thursday it would charge Lieberman over alleged irregularities tied to the promotion of an Israeli diplomat who had leaked him privileged information about a police probe into his activities.
More serious allegations, including money-laundering and bribery, were dropped, but even the lesser charges cast a cloud over his political future and within 24 hours of receiving the ministry report, he stood down.
"I have decided to resign my post as foreign minister and deputy prime minister and ... also to remove my (parliamentary) immunity forthwith so I can end this matter quickly, without delay and clear my name absolutely," Lieberman said in an emailed statement.
Netanyahu will serve as acting foreign minister until the Jan. 22 election, an official said.
Lieberman is not prohibited by law to run in the election, but it was unclear whether he would choose to do so. On his Facebook page, Lieberman wrote that he hoped the case would be settled before the vote and that he would return to public office.
Lieberman's right-wing party Yisrael Beiteinu (Our Home is Israel) and Netanyahu's Likud group have formed an electoral pact ahead of the ballot and opinion polls had predicted they would win.
Lieberman is second on the party list after Netanyahu and before his indictment he was widely expected to retain a top cabinet position in the case of victory.
"I am also doing this because I believe the citizens of Israel are entitled to go to the ballot after the matter has been resolved, meaning after a legal decision has been made before the election and I will be able to continue to serve the state of Israel," Lieberman wrote on his Facebook page.
It is highly unlikely a trial in Lieberman's case could be concluded in little over a month, but some commentators have said he might seek a swift plea deal instead.
Israel Radio's legal analyst Moshe Negbi said the law allowed Lieberman to run for parliament despite his legal problems, but precedents set by the Supreme Court would likely prevent him from serving as a minister.
"If the trial ends in his acquittal he will be able to serve as minister. If the trial ends with a conviction and the punishment will be more than a three month sentence ... he could also be forced to leave parliament," Negbi said.
An outspoken foreign minister and a powerful partner in the governing coalition, Lieberman is known for his nationalistic rhetoric, a key component of his election campaigning.
Without the Moldovan-born politician near the top of the bill, some pollsters have speculated the combined group will see its support slip, although Lieberman's decision to resign may limit the fall.
"Politically he did the right thing because the goal was to remove the Lieberman resignation off of the agenda," said Israel Radio's political analyst Hanan Kristal. "The matter was hurting the Likud in public opinion."