By Rodrigo Viga Gaier and Alonso Soto
RIO DE JANEIRO/BRASILIA (Reuters) - The former governor of Rio de Janeiro state was arrested on Thursday as part of a corruption investigation linked to a World Cup project and other works worth billions of dollars, in a blow to Brazil's ruling party that may fuel political instability.
Federal prosecutors accused Sergio Cabral, 53, of leading a criminal organization that took 224 million reais ($66 million) in bribes from construction firms in exchange for infrastructure contracts from 2007 to 2014, the years he served as governor.
The projects included the renovation of the famed Maracana soccer stadium, where the final match of soccer's 2014 World Cup was held, along with public works in some of Rio's biggest slums and the construction of a major highway around the city's outskirts.
Federal police and prosecutors are also investigating several infrastructure projects related to this year's Olympic Games in Rio de Janeiro. They have not yet taken any action on those inquiries.
As Cabral, the most powerful figure in Rio politics for the past decade, was driven out of the garage of his apartment building on Thursday morning in a black federal police SUV, dozens of people who had gathered hurled insults as TV cameramen and photographers encircled the vehicle.
Cabral made no comment. His lawyer declined to comment when reached by phone.
Following anti-corruption rallies, Cabral resigned his governorship in April 2014 with nine months left in his second term.
Cabral's arrest capped the decline of the Rio de Janeiro branch of the Brazilian Democratic Movement Party (PMDB), President Michel Temer's party, which was voted out of the city government last month amid graft probes into a number of its prominent figures.
"It creates a nervous environment which could delay our economic recovery if investors get cold feet," a presidential aide told Reuters. The aide also said the Rio state government was close to insolvency, and the Temer administration fears a domino effect hitting the finances of other Brazilian states.
Cabral is the latest high-profile politician to be arrested in a two-year corruption probe known as operation "Car Wash," which began by unraveling a massive political kickback scheme at state-run oil company Petrobras.
Cabral was a close ally of former President Dilma Rousseff, removed from office in August on charges of illegally using money from state banks to bankroll public spending, and former President Luiz Inacio Lula da Silva, whose trial on corruption charges in the Petrobras probe begins on Monday.
Executives from several construction firms have turned state's witness and the companies have signed leniency deals. That has provided testimony about endemic corruption in Brazil's political and business establishment, igniting dozens of new inquiries like the one resulting in Cabral's detention.
Testimony from executives of the construction and engineering firms Andrade Gutierrez and Carioca Engenharia formed the basis of Thursday's arrests, prosecutors said.
"There are strong indications of the cartelization of works executed with federal resources, through the payment of bribes to Sergio Cabral and other (state) employees," federal prosecutor Lauro Coelho said.
Operation Car Wash also stoked the political upheaval that ultimately toppled leftist president Rousseff.
"Cabral's arrest is unlikely to hit the Temer administration directly, but it will fuel political instability as the investigation seems to be setting its sight on the PMDB and other parties," Leonardo Barreto of Brasilia-based consultancy Factual Informacao e Analise said.
Cabral's arrest came a day after another former Rio governor, Anthony Garotinho, was arrested for alleged voter fraud in a state struggling with a severe fiscal crisis and anti-austerity protests.
(Reporting by Rodrigo Viga Gaier and Alonso Soto; Additional reporting by Anthony Boadle, Brad Brooks and Sergio Moraes; Editing by Andrew Heavens and Dan Grebler)