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The Harper government promised Tuesday a “full public inquiry … not a witch hunt” into the relationship between former prime minister Brian Mulroney and businessman Karlheinz Schreiber. The RCMP announced hours later it had also launched a review.

Opposition parties responded to the surprise announcements by calling for a halt to the impending extradition of Mr. Schreiber, which resumes in court Thursday, on the grounds he would be a key witness at any public inquiry.

Prime Minister Stephen Harper said during a raucous Question Period that he would “very shortly” appoint an independent adviser to draft the terms of reference for a public inquiry.

That was a significant shift from only four days ago when he said at a news conference the adviser would simply examine unproved allegations contained in a sworn affidavit that Mr. Schreiber filed in court last week and recommend whether they warrant a public inquiry. Mr. Mulroney, however, asked for a public inquiry Monday night.

“I don't think it's appropriate for the government to define the mandate of the commission and that's why I will ask an independent third party to provide recommendations on the best mandate for a public inquiry,” Mr. Harper said.

In his first appearance since the Harper government took action in the affair, Mr. Mulroney was greeted with a standing ovation by a crowd of business and government leaders in Toronto Tuesday.

“On more than one occasion, I've had to defend my good name, the name my father gave me. Twelve years ago I was falsely accused; I fought and I won. Now it seems I'm going to have to fight again.”

Mr. Mulroney, in the keynote address at a St. Francis Xavier University fundraiser, did not mention Karlheinz Schreiber by name, but said defending “sly suggestions” is like punching a pool full of jello.

“The only way is to confront them and put them under the spotlight, force them to testify under oath so that their conduct and their motives can be fully analyzed …

“I want to tell you tonight that I, Martin Brian Mulroney, 18th prime minister of Canada, will be there before the [public] inquiry with bells on because I've done nothing wrong and I've got absolutely nothing to hide.”

Justice Minister Rob Nicholson – who served under Mr. Mulroney in the 1980s – insisted the government will call “a full public inquiry” and get to the bottom of Mr. Schreiber's allegations that he struck a business deal with Mr. Mulroney two days before the latter stepped down as prime minister in 1993.

Mr. Schreiber said in his affidavit he gave Mr. Mulroney a total of $300,000 in three subsequent meetings in hotel rooms.

“What we will find is that it will be a true fact-finding mission and not a witch hunt,” Mr. Nicholson told the House of Commons. A spokesman for Mr. Mulroney welcomed the government's announcement.

“It will finally shed light on everything,” Luc Lavoie said. “We will be able to hear from everyone.” Mr. Lavoie noted that Mr. Schreiber has made statements in the past that contradict his allegations regarding his financial arrangements with Mr. Mulroney.

Later Tuesday, the RCMP said it was examining Mr. Schreiber's affidavit.

“As with any investigation, should new information come to the light of the RCMP, then we would review it and determine the next appropriate course of action,” said RCMP spokeswoman Nathalie Deschênes.

If the RCMP launches a criminal investigation, it could interfere with the public inquiry. However, the Gomery inquiry sat in 2004 and 2005 while the RCMP and the Sûreté du Québec conducted parallel investigations into the sponsorship scandal.

Sandra Buckler, a spokeswoman for Mr. Harper, said last night that the government's “timeline will not be affected by the RCMP's activities.”

Liberal House Leader Ralph Goodale urged the government to ensure Mr. Schreiber, who is fighting extradition to Germany where he faces fraud, bribery and tax-evasion charges, be allowed to testify at any inquiry.

During Question Period, the opposition also raised questions about a letter to the Prime Minister's Office in which Mr. Schreiber laid out his dealings with Mr. Mulroney.

The PMO has said the letter never made it to Mr. Harper or senior officials in his office, which Liberal MP Mark Holland said is hardly believable.

“Letters of such political sensitivity, like those detailing allegations of abuse by a former prime minister, are immediately forwarded by [the Privy Council Office] to the Prime Minister's most senior staff,” Mr. Holland said.

Mr. Harper shot back he did not wish to engage in a long correspondence with Mr. Schreiber. “I have no relationship with Karlheinz Schreiber, and I certainly do not intend to become his pen pal now,” he said.

With files from Greg McArthur and Unnati Gandhi in Toronto and Campbell Clark in Ottawa