Prosecutors Friday dropped an embezzlement probe of the head of Sweden's main opposition Social Democrats, and the party leadership voiced renewed confidence in Håkan Juholt as its leader.

Sweden's prosecution authority said it would close a preliminary investigation into a ballooning scandal over housing expense claims Juholt filed with parliament.

At the same time, the Social Democratic executive committee announced it wanted Juholt, who took over as party leader in March, to remain at the helm despite the crisis tormenting the party that dominated Swedish political life for most of the 20th century.

"The party is in an extremely serious position," party secretary Carin Jaemtin acknowledged in a statement, adding that after a long meeting the committee had concluded "we have confidence in him (Juholt)."

Juholt, 49, has admitted to requesting more compensation than he was entitled to for his Stockholm apartment, but insists he had misunderstood the rule.

Prosecutor Bjoern Ericson said the rules and practices surrounding reimbursment for parliamentarians' housing expenses were unclear, making it impossible to prove criminal responsibility.

Regardless of whether Juholt committed a crime, reports earlier this month that the top representative of the working class and the head of the party that created Sweden's generous welfare state had pocketed some 160,000 kronor (17,500 euros, $24,000) more than he was entitled to, struck like a bombshell.

Juholt had widely been expected to be pushed out over the scandal, which brought back painful memories of the controversy that dogged his predecessor Mona Sahlin.

In 1995, Sahlin had been considered the heir-apparent to then prime minister Ingvar Carlsson when it was revealed she charged a few thousand euros (dollars) worth of personal items to her party credit card.

After the scandal, it took her 12 years to make her way to the top of the party and she never achieved her goal of becoming Sweden's first woman prime minister.

Sahlin stepped down in March, six months after her party suffered its worst election score in nearly a century.