Joe Anderson said he was "stepping away from decision-making" and would take unpaid leave while the investigation continued.

He said his arrest on Friday was a "painful shock" and he believed "time would make it clear that I have no case to answer".

He was released on conditional bail.

Year-long inquiry

Mr Anderson and four others, including Derek Hatton, the former deputy leader of the council, were held as part of an investigation into the awarding of building contracts in the city.

The year-long police inquiry, Operation Aloft, focussed on a number of property developers.

Liverpool City Council's chief executive Tony Reeves met Local Government Secretary Robert Jenrick on Monday and the government later requested the authority reveal its planned commercial property deals.

In a statement, Mr Anderson said: "I have always done what I believe is best for the city, and I am taking the following action with those best intentions in mind."

He said it was "important" that everyone in Liverpool knew leaders were "focussed on what is most important to the people, their livelihoods and, with a pandemic still in force, their lives".

"I am, therefore, stepping away from decision-making within the council through a period of unpaid leave, until the police make clear their intentions with the investigation on the 31 December."

Deputy mayor Wendy Simon will now become interim mayor.

The council's Liberal Democrat opposition leader Richard Kemp said Mr Anderson had made "almost the right decision" to step away from the city's affairs.

He added: "His resignation would have been an even cleaner break".

Mr Kemp also tweeted: "Relationships with the government and the private sector would be very difficult whilst the city's political leader is under a cloud."

He said the situation had shown up the "worst of the mayoral system" and his party would submit a motion to end that system and return to a modern committee system "in which there are checks and balances".

Local Green Party leader Tom Crone said he welcomed Mr Anderson's decision.

He tweeted: "Stand-in mayor Wendy Simon must act swiftly to restore trust in local democracy. Share power across a cabinet of all the parties to see us out of this health, financial and political crisis."

Ms Simon said her "number one" priority was "steering this great city and its people through the pandemic and preparing for the recovery".

She said while she was acting mayor she wanted to "create a city that has equal opportunities for all" and "establish a platform of confidence" to reassure investors.

Father-of-four Mr Anderson was elected in 2012, having been a Labour councillor since 1998.

He said he was "very grateful" for messages of support and had "faith" that Liverpool's future was "bright" and the city's "best days" lay ahead.