LONDON (Reuters) -- Iain Duncan Smith, the main political opponent of British Prime Minister Tony Blair, is facing the possibility of an inquiry into claims he misused public funds, a charge that has heightened speculation party members may seek to oust him as their leader in coming weeks.

Duncan Smith -- widely seen as lacking the charisma to mount an effective challenge to Blair -- won a stay of execution as Conservative Party leader with an aggressive speech to his party last week but allegations surrounding his employment of his wife Betsy as his secretary have raised fresh doubts over his future.

On Monday, a journalist presented a dossier of the claims, which Duncan Smith has denied, to a parliamentary standards watchdog, which must now decide whether to launch an inquiry.

Whether or not an inquiry is held, the media storm whipped up by the allegations could give fresh impetus to senior Conservative lawmakers who want to oust Duncan Smith.

Blair can hardly believe his good fortune as the Conservative Party's disarray takes the media spotlight off his own troubles over Iraq and public services.

The Conservative Party dominated 20th century British politics under iconic leaders like Winston Churchill and Margaret Thatcher, but has struggled to find direction after suffering two crushing defeats at the hands of Blair since 1997.

Some Conservatives, dismayed by their inability to capitalize on a dire year for Blair's Labour Party, want a new leader quickly, ahead of the next general election expected in 2005.

The latest allegations overshadowed an opinion poll in the ***Mail*** on Sunday by YouGov that put the Tories, as the Conservatives are known, at 38 percent, five points ahead of Labour, although analysts say the Tories need to be consistently further ahead in polls to stand a chance at the next election.

On the eve of the party's annual conference last week, another poll showed just 14 percent of people thought the Tories could ever win an election with Duncan Smith as leader.

Senior Conservative lawmaker Liam Fox told Sky News the allegations were "a classical case of a political smear" and an attempt to destabilize the leadership.

But Blair can only be grateful that the Tories are tearing themselves apart.

"We have got a huge opportunity now because if we handle ourselves in the right way we are the only serious option, the only serious show in town," he told ***The Times*** on Monday.