Austria's Chancellor, Dr Wolfgang Schussel, is looking uncommonly cheerful these days as he relishes his country's return into the warmth of full diplomatic relations with its 14 European Union partners.

After seven months of isolation following his decision to form a coalition with Jorg Haider's far-right Freedom Party, the Chancellor is receiving invitations to travel abroad once again, including a visit to Dublin next month.

His conservative People's Party has taken the lead in opinion polls and won a spectacular victory earlier this month in a parliamentary election in the state of Styria. Friends say that Schussel, who jogs every day, eats carefully and avoids coffee, is in peak form as he glories in the fulfilment of his life's ambition of leading his country's government.

The Chancellor's thin-lipped smile could vanish as quickly as it appeared, however, as his rightwing coalition absorbs a succession of shocks that could bring it down within months.

The People's Party's victory in Styria came at the expense of its coalition partners in the Freedom Party and prompted an angry outburst from Haider, who blamed the Chancellor for taking credit for all the government's achievements.

"If that happens again, I'll be the first to mobilise the party to call a fresh election and reshuffle the cards," Haider said.

Haider, who remains the guiding force behind the Freedom Party despite having stepped down as its leader, stirred up more trouble this week while campaigning for local elections in Vienna. As skinheads fought with left-wing protesters outside, Haider told supporters in Vienna's town hall that illegal immigrants in Austria should be eliminated.

"There are far too many illegal immigrants, criminals and drug dealers. None of them has a place here in Austria. This has to be our priority, to eliminate them uncompromisingly," he said.

The remark reinforced doubts among Austria's EU partners about Schussel's claim to have tamed Haider's party by bringing it into government. But if the Austrian government falls, it may not be on account of Haider or the disapproval of Vienna's allies abroad but because of a confession by a 37-year-old former policeman called Josef Kleindienst.

A former Haider supporter, Mr Kleindienst revealed this month that, over a period of years, sympathetic officers supplied information from a police computer to help the Freedom Party attack its political opponents.

Using fake excuses, the police officers called up information on Haider's opponents and passed it on for use either as political propaganda, or in some of the numerous libel actions in which the far-right leader and his allies have been embroiled.

Mr Kleindienst himself ran a check on Andre Heller, the leftwing artist who has been one of Haider's most articulate critics. The computer gave him such details as how rich Heller was, what kind of car he drove and the nature of his lifestyle.

The first official reaction to Mr Kleindienst's whistle-blowing was to prosecute the messenger. But a series of fresh revelations has left the authorities with no option but to broaden their investigation. Prosecutors announced this week that they are investigating 18 people in connection with the scandal, including Haider himself.

One of the most serious allegations, published this week in the left-wing magazine Falter concerns the role of Austria's Justice Minister, Dieter Bohmdorfer. A leading figure in the Freedom Party and formerly Haider's personal lawyer, Bohmdorfer astonished opponents in his courtroom days by producing unexpected pieces of evidence to discredit witnesses.

Bohmdorfer claims that he received the evidence, which included police photographs and information about previous charges that was only available to the security services, from his clients. He says he has no idea where the information originated.

HELMUT ZILK, a former mayor of Vienna and one of those on whom Haider's friends in the police spied, has described the scandal as a mini-Watergate. Haider has denied any involvement in the affair and argues that, under the previous government, he was the victim of unlawful spying. It is true that in 1994 the authorities invoked a spurious assassination threat to conduct an investigation into Haider's private life, which has long been the subject of colourful rumours.

Schussel's strategy for political success so far has been to avoid confrontation with the Freedom Party and to ignore Haider's outbursts. He hopes that, if the coalition survives, his People's Party will reap the benefits and emerge as Austria's strongest party in the next election. This would allow him to choose his coalition partner next time, secure in the knowledge that he would remain Chancellor.

As the spying scandal deepens, however, pressure is mounting on the Chancellor to sack Bohmdorfer, a step that could be a humiliation too far for the Freedom Party. If Schussel takes no action, the scandal will continue to undermine his government's democratic credentials and damage his own reputation.

If he risks a confrontation with his coalition partners, he could find himself back on the campaign trail within weeks facing an angry, untamed Jorg Haider.