A German court Tuesday ordered the release from jail of a Canadian-German arms dealer who was a key player in a party funding scandal that helped bring Chancellor Angela Merkel to power.

The higher regional court in Augsburg, southern Germany, ordered Karlheinz Schreiber, 78, to be released from prison after he suffered a heart attack.

The court said it had "significant doubts about his capacity to stay in prison" and ordered him instead to report to police daily.

Schreiber was sentenced to eight years behind bars in May 2010 after being found guilty of withholding some 7.5 million euros ($9.6 million) in taxes between 1988 and 1993.

In September, his case was ordered to be re-tried after the Federal Court of Justice called for clarification over whether he was actually liable to pay German taxes and whether bribery charges had passed the statute of limitations.

The retrial has not yet taken place.

Schreiber played a central role in a sprawling slush-fund affair that rocked Merkel's Christian Democratic Union (CDU) party in the 1990s and tarnished the legacy of former chancellor Helmut Kohl.

At the height of the scandal in 1999, Merkel wrote an editorial in the daily Frankfurter Allgemeine Zeitung calling for Kohl to come clean and for the party to break with its murky past.

Merkel's willingness to challenge her former mentor during the scandal rapidly inflated her then low profile and she was elected head of the CDU the following year.

Police find large cache of arms in eastern Bosnia
Sarajevo (AFP) May 15, 2012 - Bosnian police found in the eastern town of Bratunac a large cache of arms, including automatic rifles, hand grenades, rocket launchers, explosives and ammunition, the interior ministry said Tuesday.

In the loft of a building, the police discovered 13 automatic rifles, a machine gun, 80 hand grenades, five rocket launchers, 3.8 kilogrammes (8.3 pounds) of plastic explosive, five guns, eight mortars and more than 5,000 pieces of various ammunition and military equipment, the ministry said in a statement.

The arms were hidden by a Bosnian Serb at whose home police also found more weapons and ammunition, the ministry said.

The suspect was released after being questioned by a prosecutor, a police spokeswoman Mirna Soja was quoted by the Fena news agency as saying.

"The information that police have does not indicate that the suspect had the intention to use these arms for a terrorist activity," Soja said.

The arms were believed to be intended for illegal trafficking, Fena reported, citing police sources.

However, the discovery of the arms worried Muslims who had returned to the Serb-dominated town after Bosnia's inter-ethnic 1992-1995 war.