* 35 arrest warrants issued for corruption, related crimes
* Assets worth around 40 million euros seized
* Graft scandals scarring Italian politics (Adds prosecutor statement, politician comment, detail)
By Sara Rossi
MILAN, June 4 Italian authorities put the mayor of Venice under house arrest on Wednesday and issued warrants for more than 30 people for suspected corruption over a 5-billion-euro ($6.8-billion) flood barrier project, the latest scandal to engulf Italian politics.
The Moses project, designed to save the famed canal city from sinking into the lagoon it is built on, was first mooted back in 1966 but construction did not start until 2004, due to wrangling over its design, funding and environmental impact.
In a statement, Venice prosecutors said they had issued 25 jail warrants and 10 for house arrest - on allegations of corruption, illicit party financing and tax fraud.
Police sources said Venice's centre-left mayor, Giorgio Orsoni, was among those placed under house arrest.
Police carried out the prosecutors' orders in the early hours of Wednesday morning, the statement said, and seized assets worth around 40 million euros ($54.49 million).
Giancarlo Galan - a two-time minister, prominent official in Silvio Berlusconi's Forza Italia party and former governor of the Veneto region - was also among the accused.
A spokesman and lawyers for Orsoni did not respond to phone calls requesting comment. Italian media quoted his lawyers as saying the accusations were "hardly credible".
Galan issued a statement denying any wrongdoing and said he wanted to speak to prosecutors to clear his name.
As a member of parliament, Galan cannot be arrested unless parliament votes to lift his immunity.
The investigation into hidden funds created by companies involved in Moses, the first of whose barriers was unveiled last year, and other projects in the Veneto region began in 2009.
"As the investigation continued, it emerged that most of these funds were used to buy political power ... and to bribe senior public officials," the prosecutors' statement said.
The Moses project has long been in the crosshairs of Venice prosecutors. Last July police arrested seven people suspected of rigging lucrative contracts for the job.
Italy's cross-party coalition led by Prime Minister Matteo Renzi, leader of the biggest centre-left party, has pledged to clamp down on corruption and clean up politics.
Italy has long struggled to contain graft in politics and business, and ranks 69 out of 177 countries in Transparency International's corruption index, below most European peers.
Former prime minister Berlusconi was convicted of tax fraud last year and is serving his sentence doing community service at an old people's home near Milan.
Former industry minister Claudio Scajola was arrested earlier this year by anti-mafia police. Ex-environment minister Corrado Clini was arrested last week on charges of siphoning off funds intended for government projects, including provision of water in Iraq.
"What more do these parties have to do to lose the vote of the Italian people?" Luigi Di Maio, spokesman for the anti-establishment 5-Star Movement, wrote on a blog run by the party's leader, comedian Beppe Grillo.
Seven men were arrested on May 12 on suspicion of bribery in building contracts for Italy's Expo 2015 world fair - a scandal reminiscent of the Bribesville investigation that brought down Italy's ruling elite in the early 1990s.
"These things seem to me to belong to a past that never passes and that is very damaging to the changes that we want to make," Sandro Gozi, undersecretary for European affairs, commented in an interview with RAI state TV.
Prosecutors are investigating defence giant Finmeccanica and oil services group Saipem for alleged bribery over international contracts. Both deny any wrongdoing. ($1 = 0.7342 euros) (Additional reporting by Isla Binnie in Rome; Writing by Stephen Jewkes, Steve Scherer and Isla Binnie; Editing by Mark Heinrich)