One of India's biggest corruption scandals in the Congress-led government's six years in power has damaged the prime minister's image, strained ties with a key coalition ally and disrupted the passage of reform bills.

While the scandal over the granting of 2G telecoms licences that prompted Telecoms Minister Andimuthu Raja's sacking is unlikely to threaten the government's survival, it underscored the fragility of a fickle coalition despite its overwhelming re-election in 2009.

At stake is not only the image of the ruling Congress, a party that in 1989 lost a general election partly due to a scandal over gun contracts involving close associates of then Prime Minister Rajiv Gandhi who were accused of taking bribes.

The scandal also threatens to drag Prime Minister Manmohan Singh's second term into further policy limbo. In a hearing into the case on Tuesday, the Supreme Court bench criticised Singh's slowness in deciding if Raja could be charged and investigated.

"We find it is now more than 16 months ... We find alleged inaction and silence troubling," the Supreme Court bench was quoted by local media as saying. The comments by the judges do not form part of a judgment.

The main opposition party, which has repeatedly blocked progress in parliamentary sessions over the last year, said on Monday it would carry on blocking reform bills.

"It tainted the entire government," The Indian Express said of the scandal in an editorial on Tuesday.

"This is a crucial time ... and we cannot afford to have enormously important matters of governance held up because the ruling coalition's energies are focused on dousing the fires of impropriety and scandal."

The opposition stepped up its demand for a parliamentary probe after Raja resigned on Sunday, after a report from the government auditor said the state may have lost up to $31 billion in revenue, roughly equivalent to the defence budget, in the granting of telecoms licences in 2007-2008.

Raja is accused of selling the licences at deliberately low prices to companies, some of which were ineligible, a charge he denies. The process also violated several rules, the report said.

Swan Telecom, since then bought into by UAE's Etisalat , was given a licence despite a unit of No 2 telecoms firm Reliance Communications holding over 10 percent of equity, a violation of rules, the report said.

Several firms, which now are part of Telenor's India operations, were also given licences despite not having adequate capital, the report said.