Turkish Prime Minister Tayyip Erdogan will form a new party if his ruling AK Party is closed down by the Constitutional Court for Islamist activities, local media reported on Monday.

Last week the AK Party submitted its preliminary defence in the controversial case, under which a prosecutor also aims to ban from politics for five years 71 members of the party, including Erdogan.

The case has rattled financial markets, triggered fears of months of political uncertainty and drawn criticism from the European Union, which Turkey hopes to join.

Broadcaster Kanal D said on its website that preparations for the creation of a new party were complete. It said Erdogan disclosed the information at a dinner with a small group of journalists on Saturday evening.

Officials at the prime minister's office were not immediately available for comment.

"We will not create tensions for Turkey," Vatan newspaper quoted Erdogan as saying.

"This case will be completed by July," he said, adding that the Turkish economy could not cope with the process being extended.

Erdogan said he did not expect the court to actually shut the party down and that he would not seek constitutional changes to avert the closure.

The AK Party, which won a sweeping re-election last July, rejects the prosecutor's charges that its members were engaged in anti-secular activities and says the case is politically motivated.

The Islamist-rooted government is at odds with the secular establishment, which includes the powerful military and judiciary, over the role of Islam in secular but predominantly Muslim Turkey.

Erdogan said that if he was personally banned he would call new elections and run as an independent candidate.

"I have researched it. There is no obstacle in the way of me being an independent candidate," the prime minister was quoted as saying.

Within the indictment, the prosecutor points to the role of Erdogan and other leading AK Party figures in previous parties closed for anti-secular activities.

Turkey has banned a number of political parties in the past for alleged Islamist or Kurdish separatist activities. Many commentators expect the AK Party to suffer the same fate.

The court agreed at the start of April to hear the case, brought after parliament passed a constitutional amendment to lift a ban on university students using the Muslim headscarf, viewed by secularists as a symbol of political Islam.