The district's governor, Jose Roberto Arruda, was jailed this month for interference with an investigation into a suspected racketeering scheme.

Arruda, Octavio and several of their aides are accused of getting kickbacks from construction firms in exchange for public works contracts. They deny the charges.

Octavio owns one of the biggest construction firms in Brasilia.

The scandal, widely publicized since it broke in November, could hurt the chances of Arruda's right-wing Democratas party (DEM) in the Oct. 3 general election.

"This is unfortunate and it will be used against us," DEM chief Rodrigo Maia told local media.

Democratas is the main ally of Sao Paulo state Governor Jose Serra of the centrist PSDB party, who leads Lula's chief of staff Dilma Rousseff in the presidential race, according to recent opinion polls.

Serra had been expected to choose a DEM running mate as his vice-presidential candidate but may now may try to bring on board Minas Gerais state Governor Aecio Neves from his own party.

Political analysts say the scandal may make it more difficult for the opposition to take the moral high ground in campaigning for the October election. It had planned to remind voters this year of a 2005 campaign financing scandal involving Lula's Workers' Party.

Corruption scandals tend to surface during election years in Brazil. Numerous politicians, including congressmen and mayors, are being investigated by federal police on suspicion of lining their pockets in exchange for political favors.

Electoral authorities last week said they would strip Sao Paulo Mayor Gilberto Kassab, also a DEM member, of his mandate because he allegedly received illegal campaign donations in 2008. His lawyer obtained an injunction this week, meaning that Kassab will remain in office until a final court ruling.

**Reporting by Maria Carolina Marcello; Writing by Raymond Colitt; Editing by Stuart Grudgings and John O'Callaghan