SEOUL South Korea's cabinet on Wednesday approved a special counsel to look into securities fraud allegations against president-elect Lee Myung-bak, the presidential Blue House said in a statement.
Conservative Lee will become the country's first president-elect to face a criminal investigation and the probe is likely to undermine his leadership when he takes office in late February.
The former CEO with the Hyundai Group won a landslide victory in a December 19 election with pledges to revive the economy, roll back regulations he says stifle business and take a tough line on North Korea.
Members of Lee's Grand National Party have asked the outgoing President Roh Moo-hyun and his left-leaning government to stop the probe for the sake of national unity.
Roh, working with the Supreme Court, is expected to name in early January the person who will lead the investigation.
Any probe is unlikely to be completed before Lee's inauguration on February 25, when he will become immune from prosecution.
But questions about his character would be used by liberals in an April parliamentary election, where they are battling to keep their majority, analysts said.
Prosecutors have previously cleared Lee of any criminal involvement in a securities company called BBK, which is suspected of defrauding investors of millions of dollars.
The president-elect has denied any wrongdoing or links to BBK, but a few days before the presidential election, political rivals aired a video from seven years ago which they said showed he lied about his role.
The liberal-dominated parliament then approved the probe.
On Tuesday, the president-elect named Lee Kyung-sook, a political science professor who is president of a leading women's university, to head a transition team mostly made up of respected academics and senior conservative politicians.
Lee Kyung-sook, who is credited with taking a business-like approach to academic administration, is the first woman to lead a presidential transition team.
"This team indicates that (president-elect) Lee's line is going to be one of pragmatic politics," said Jeong Chan-soo, a specialist in domestic politics at MIN Consulting.
(Reporting by Jon Herskovitz and Jessica Kim; Editing by David Fogarty)