TAIPEI, Aug 31 (Reuters) - A former mayor of Taipei who heads a small opposition party was arrested early on Saturday as part of a graft probe of a major property development in the Taiwanese capital.

Ko Wen-je, mayor from 2014 to 2022 and who came third in January's presidential election, was arrested after investigators raided his home and party on Friday and questioned him for hours, his Taiwan People's Party said.

Ko has denied wrongdoing in the case, which involves approvals given for a property project when he was mayor, telling reporters on Friday that "I know I have no problems".

The TPP, in a statement on Saturday, said it "calls on the court to carefully examine the legality of the arrest procedure during the arraignment process, and to return justice to Chairman Ko Wen-je as he deserves".

He and the TPP have also acknowledged that campaign funds during the presidential campaign were misreported. Ko said this week he would temporarily step down as party chairman while that case is investigated, and apologised to party supporters.

Ko has been widely expected by Taiwan media to seek the presidency again at the next election in 2028. But opinion polls have showed that the scandals have hammered support for him and the TPP, which he founded in 2019 in an attempt to create a third force in Taiwanese politics.

The TPP has only eight lawmakers in Taiwan's 113-seat parliament but has an outsized role as neither the ruling Democratic Progressive Party nor the largest opposition party, the Kuomintang (KMT), has a majority.

The TPP and KMT joined forces this year to push through reforms to give parliament greater oversight power that prompted mass protests. Those reforms, opposed by President Lai Ching-te's DPP, are being reviewed by Taiwan's constitutional court.

Under Taiwan's system, the president appoints the premier, who forms the cabinet, and the president signs legislation into law.