BERLIN -- German Chancellor Gerhard Schroeder fired his scandal-prone defense minister Rudolph Scharping on Thursday following election-year allegations he accepted fees from a public relations firm.

"I will ask the president to relieve Scharping of his duties as defense minister," Schroeder said at a press conference after a flurry of speculation about his future.

Schroeder named Peter Struck, the parliamentary leader of his Social Democrats (SDP), to replace him.

The dramatic developments came just two months ahead of elections in the key NATO state, with Schroeder facing a strong challenge from the conservative Bavarian Premier Edmund Stoiber.

Scharping has been defense minister since October 1998 but the chancellor has been under pressure to remove him on several occasions over the last 18 months.

Earlier, Scharping had brushed aside revelations in the ***Die Welt *** newspaper that he was to be sacked over the alleged improprieties.

"The arbitrary, trumped-up claims of a magazine cannot be the basis for a resignation," Scharping told reporters.

Party sources told the newspaper's Friday edition that the chancellor "gave the final word" at a secret meeting on Wednesday to get rid of Scharping, who has been plagued by bad press and alleged gaffes for more than a year.

Scharping has dismissed allegations of wrongdoing for accepting payments of some 71,000 euros (dollars) from the Hunzinger public relations firm in 1998 and 1999, in an interview published by the mass-selling ****Bild ***newspaper.

He has been widely viewed as a political liability for Schroeder and during a television interview in May, the chancellor notably excluded him from a list of ministers he planned to keep on board if he wins the election. Ahead of Schroeder's announcement, Stoiber called Scharping's departure "long overdue", adding: "This is a government on its way out."

"It shows that the chancellor has completely lost the ability to act," said the leader of the Christian Social Union.

Scharping told ***Bild ***he had received the fees at issue from Hunzinger as an advance for his memoirs and as compensation for speeches he gave before becoming minister in September 1998. He did not explain why the payments were made later.

Government ministers are barred from accepting payments from private companies while in office.

"I declared the money to the Finance Ministry and paid taxes on it," Scharping said. "I am prepared to open my files to prove that."

Moritz Hunzinger, the head of the public relations firm and a member of the opposition Christian Democratic Union, has also denied any wrongdoing.

Scharping said much of the money had gone to cultural, religious and charitable causes he supports, amounting to some 13,000 euros in donations each year, AFP reported.

The weekly magazine ***Stern ***reported in its issue published Thursday that Scharping had used the money in part to buy expensive suits and other clothing worth some 27,000 euros.

The minister faced a grilling in Parliament last September over claims he had improperly used military planes to visit his companion, Countess Kristina Pilati, in the western city of Frankfurt. He narrowly escaped a full-blown scandal with the attention given to the terrorist attacks of September 11.

This flap came soon after the press had scolded him for posing with Pilati in a swimming pool on the Spanish island of Mallorca for a celebrity magazine while German troops were bound for a difficult NATO peacekeeping mission in Macedonia.

Scharping was also hit with opposition charges that he disclosed the route the troops were to take from Kosovo to join the Macedonia mission, forcing their route to be changed.

And earlier this year, he was accused of double-talk with international partners on the purchase of the airbus A400M military plane.