Senior Minister Lee Kuan Yew said the amount of damages offered by Singapore Democratic Party (SDP) chief Chee Soon Juan could determine if legal action went ahead.

The campaign for Saturday's election was initially expected to be a rather academic process after the ruling People's Action Party won more than 50 percent of the seats uncontested.

But instead it has been spiced with vitriol after Chee alleged the government had loaned US$10 billion to Indonesia and both Lee and Prime Minister Goh Chok Tong were evading debate on the issue.

It took the government to produce its feared weapon of a defamation suit and a warning from Lee that "we've got rid of a lot of people who would have done Singapore immense harm," before Chee fully retracted the remarks.

Two early apologies by Chee had been dismissed by Goh and Lee as the SDP leader came in for a barrage of name calling ranging from "liar" to "gangster" and was told his taunting of Goh on the hustings was un-Singaporean and ungentlemanly.

First Goh then Lee, Singapore's founding prime minister, sent legal demands to Chee setting a number of conditions to be agreed by 10 am Friday or legal proceedings would begin.

"I hereby admit and acknowledge that I had no basis for making these allegations, and that they are false and untrue," Chee told a campaign meeting Wednesday night, quoting from a letter drafted by lawyers for Goh and Lee.

He unreservedly withdrew and apologised "for the distress and embarrassment caused ... by my false and baseless allegations."

Chee also agreed to the lawyers' demands to have apologies published in two newspapers and pay compensation, but the hardline Lee said that may not end the matter.

At a press conference on Wednesday night, Lee said: "I've been in this for 40 years. I know that when you come across a bad man you've got to deal with him. And I do not consider him (Chee) a good man.

"The prime minister considers him a dangerous man. I think we should not allow him ... to do us damage."

Lee said his lawyers would decide whether Chee had met all the conditions for an apology and "whether the damages offered are adequate".

"Once you do this it doesn't mean you say 'I'm sorry' and it's all forgotten. No it isn't. there are serious consequences that they have to consider," he said.

Goh said it was unfortunate the Chee issue sidetracked the election campaign but he had no choice but to take action.

"He defamed me. He also defamed the senior minister. We have no choice but to seek legal redress in demanding an apology from him in legal terms," Goh told reporters.

"Now that the matter is in hand, I want to put it aside so that the election will not be about Dr Chee."

Legal action has long been part of Singapore politics. Opposition leader J.B. Jeyaretnam was forced out of parliament this year when declared bankrupt after losing a series of defamation suits.

His Workers Party colleague Tang Liang Hong fled the country when faced with a defamation suit during the 1997 election.

Chee, who has long argued for more openness in Singapore, was jailed twice in 1999 for speaking in public without a permit, when campaigning against speech and press restrictions.

He was once fined 51,000 dollars by parliament when a report he filed to legislators on medical fees contained an error.

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