(Updates with press conference comments)
SAO PAULO, Aug 13 (Reuters) - Brazilian federal police on Thursday announced they executed 10 search and seizure warrants and arrested an attorney in a scheme they said siphoned government funds via fraudlent contracts with Brazil's planning and budget ministry.
Police told a press conference they arrested attorney Alexandre Romano, an ex-city councilman with the ruling Worker's Party in Sao Paulo state, after uncovering evidence of ministry funds diverted from a ministry payroll contact through last month.
Federal agent Igor Romário de Paula said Romano's involvement was the first sign in a 17-month-old bribery and money-laundering investigation that law firms in Brazil had been used to divert money from public coffers.
The corruption probe, Brazil's most extensive ever, is broadening from an investigation of contracts at state-run oil firm Petroleo Brasileiro SA, or Petrobras. Investigators are also looking into a nuclear power project overseen my state-run utility Eletrobras and have investigated allegations of fraud involving the health ministry.
Police said more than 50 million reais ($14 million) had been illicitly obtained from a payroll loan contract with the planning ministry. The ministry's role is still under investigation, but a former human relations director is suspected of taking bribes according to police.
A planning ministry spokesman said the ministry had not been notified of the operation and therefore had no comment.
Romano had been identified as a potential money launderer in an operation on Aug. 3 that jailed Jose Dirceu, one of the most senior members of the Workers' Party detained so far.
Prosecutors said Romano had received transfers from the scheme including one for 300,000 reais in July.
"There is an audacity in people continuing to practice crimes in the middle of this investigation," said prosecutor Robson Henrique Pozzobon.
$1 = 3.5 reais Reporting by Caroline Stauffer; Additional reporting by Luciana Otoni in Brasilia Editing by W Simon