MADRID—A bitter legal dispute between Spain’s ruling party and its former treasurer is adding fuel to a corruption scandal that has undermined the popularity of Prime Minister Mariano Rajoy.

“We have taken action against those who have harmed us the most and have most viciously attacked the Popular Party,” Carlos Floriano, the party’s deputy secretary general, said Thursday.

A day earlier, Mr. Rajoy’s Popular Party filed a defamation suit against Spanish newspaper El País and the person it says is the author of the most damaging allegations, calling them false.

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European Pressphoto Agency

Demonstrators in Madrid last month protested government corruption and called for a better democracy.

Prosecutors are investigating the newspaper’s allegations that Mr. Rajoy and other party leaders had pocketed envelopes of cash donated by Spanish companies seeking government contracts.

The newspaper, which published images of what it said were ledgers documenting the payments, said the money was distributed from an alleged slush fund overseen by then-party treasurer Luis Bárcenas. He denies playing a role.

The allegations of illicit enrichment haven’t resulted in criminal charges, and legal experts say they would be difficult to prove. But the scandal has touched a raw nerve in a country experiencing a prolonged recession, 26% unemployment and sharp cutbacks in public services.

Mr. Rajoy enjoys a comfortable parliamentary majority and faces no internal challenges to his position of party leader, but the controversy has contributed to a precipitous decline in his popularity.

A Metroscopia survey published on Sunday by El País showed most respondents don’t believe the Popular Party is coming clean about its relationship with Mr. Bárcenas.

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The survey found that 79% of respondents think that Mr. Bárcenas holds damaging evidence against the party.

It also found that the party would win just 24% of the vote if national elections were held today, compared with the 44.6% it got in its electoral victory in November 2011, while the main opposition Socialists would get 23%, down from 28.7%.

Wednesday’s suit against the newspaper named “the author of the false papers, who the newspaper says is Luis Bárcenas,” noting that El País had identified him in January as the author of handwritten ledgers allegedly showing secret payments to party leaders—as much as $30,000 a year on top of their official salaries.

Mr. Bárcenas has sued the Popular Party, saying the party, whose accounts he helped keep for 20 years, dismissed him without proper cause in January as the scandal was surfacing in the Spanish press. The party hasn’t commented on Mr. Bárcenas’s suit.

Mr. Rajoy and most other alleged recipients have denied receiving payments. In its suit Wednesday, the party said it had never maintained a secret accounting system.

But at least six party members appearing in the ledgers, including Sen. Pío García-Escudero, acknowledged receipt of the listed sums.

The senator in public comments described the money as a loan he had since repaid.

El País and lawyers for Mr. Bárcenas declined to comment on the party’s lawsuit, which seeks €500,000 ($652,000) in damages. Legal experts say, however, that Spanish law sets a relatively high bar for libel suits involving public figures.

Spain’s attorney general, Eduardo Torres-Dulce, in January said he thought there is “evidence and reasons to investigate” the newspaper’s allegations.

Jorge Trías, a Spanish lawyer and former member of Parliament, said he had told prosecutors in February that several years ago, Mr. Bárcenas showed him the ledgers later published by El País.

He said Mr. Bárcenas told him they were part of a secret accounting system.

Mr. Bárcenas hasn’t commented on Mr. Trías’s remarks, but in a statement distributed by state-owned news agency EFE in January, denied ever distributing undeclared payments.

Mr. Bárcenas was named in 2009 as a suspect in a continuing judicial investigation into alleged kickbacks from construction companies in exchange for public-works contracts.

A lawyer for Mr. Bárcenas has said he wasn’t a government employee at the time of the alleged kickbacks and couldn’t be accused of misusing public funds.

Mr. Bárcenas’s Feb. 25 lawsuit for compensation for unfair dismissal contradicts the party’s version of events.

The party has said Mr. Bárcenas left his post by mutual agreement in 2010, soon after he was named in the kickbacks investigation.

But the party said it paid out the severance in installments over the next two years and continued to make social-security contributions on his behalf.

In his lawsuit, Mr. Bárcenas said he continued to be employed by the party until it unilaterally terminated his contract in January, making him entitled to a severance payment.

Speaking last week in Parliament, Socialist leader Alfredo Pérez Rubalcaba suggested Mr. Bárcenas was distracting the government from the business of dealing with the country’s deep economic problems and urged Mr. Rajoy to resign.

“Can you continue to govern in fear of another attack of honesty from Mr. Bárcenas?” he said.

The judicial investigation of the alleged payments is at an early stage and could drag on for years.

Legal experts say any wrongdoing is difficult to prove in corruption scandals that lack an aggrieved party to drive the case forward.

“The victim is society, the public interest…So the legal arguments to secure a conviction are very complex,” said Marc Molins Raich, a criminal-law professor at the ESADE law school in Barcelona.

Mr. Molins Raich added that the prosecutor’s investigation and the party’s failure to offer convincing explanations mean that someone, for political and ethical reasons, should be forced to resign.

Write to Jonathan House at jonathan.house@dowjones.com

A version of this article appeared March 7, 2013, on page A11 in the U.S. edition of The Wall Street Journal, with the headline: Allegations Pressure Spanish Leadership.

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