ISTANBUL - Turkey on Wednesday denied a report saying Turkey had received funds from Iran, accusing it as a liar and fabrication.

The report, from Daily Telegraph, one of the leading British newspapers, is definitely a fabrication and his party did not receive any funds from Iran, Omer Celik, vice chairman of the ruling Justice and Development Party (AKP) and chairman of Foreign Affairs, said at a press conference held in Istanbul.

"This incident has never happened and those allegations in the news story have no evidence," he said.

The report is made up by some western media because it comes just after the national referendum on Sunday, he added.

Celik threatened to sue Daily Telegraph unless it corrects the story. "Our party will bring the case to court."

The Iranian Embassy in Ankara said Wednesday that "the newspaper`s intention is to harm the friendship and good neighborhood relations between Turkey and Iran."

The newspaper "had a reputation for phony news," the embassy said, adding that it was trying to taint the Turkish people with " its unprofessional attitude."

Daily Telegraph reported that Iran has agreed to donate 25 million U.S. dollars to Turkey`s ruling AKP in a move that will increase fears that Prime Minister Tayyip Erdogan is preparing to abandon the country`s secular constitution.

The report quoted western diplomats as saying that they are alarmed by reports that Erdogan has negotiated a deal with Iranian President Mahmoud Ahmadinejad that Tehran will make a substantial contribution to the campaign funds of Turkey`s leading Islamic party.

Under the deal, Iran agrees to transfer 12 million dollars to the AKP, with further payments of up to 25 million dollars later this year. The money is said to be used to help support Erdogan`s campaign for re-election for a third term in next year`s general election.

However, Celik said that his party was surprised to see the report on Tuesday night and it was not true.

On the other hand, he said, Iran`s First Vice President Mohammad Reza Rahimi would come to Turkey on Wednesday for a two- day trip and attend the Turkish-Iranian Business Forum in Istanbul.

The trip is a follow-up to Erdogan`s visit to Tehran last October. Rahimi is scheduled to hold talks with Erdogan and Turkish President Abdullah Gul.