Spanish judges on Friday dropped a money-laundering case against the king's sister Cristina but upheld tax fraud charges, leaving her still at risk of standing trial in a scandal unprecedented for Spain's royals.
Spanish Princess Cristina arrives at the courthouse on the Balearic island of Mallorca, on February 8, 2014
In a written ruling the court on the island of Mallorca answered the latest appeals in a case that contributed to the abdication this year of King Felipe's father, Juan Carlos.
The judges decided to "partially uphold the appeals... dismissing the proceedings with regard to money-laundering and maintaining the charges of cooperating in tax fraud" against Cristina, 49, they wrote in a ruling seen by AFP.
Judicial sources said the lesser tax fraud charges may yet be overturned by a separate investigating judge, who has the final say on whether the princess goes on trial.
It would be the first time a direct relative of a Spanish monarch ended up in the dock and a big headache for Felipe who took the throne in June promising an "honest and transparent monarchy".
Investigating judge Jose Castro accused Cristina of knowingly benefiting from suspect business dealings by her husband, former Olympic handball player Inaki Urdangarin, 46, who took the title of Duke of Palma when he married.
Urdangarin is himself accused of embezzlement. The judges on Friday upheld a further charge of money-laundering against him.
Cristina's lawyers have insisted she is innocent and vowed to continue fighting the remaining charges.
Her lawyer Miquel Roca told reporters after Friday's ruling the defence found the decision to uphold the tax charge "surprising".
"We are going to continue with the defence because we believe that there are not sufficient grounds to bring any kind of accusation," he said.
The investigating judge is at odds not only with Cristina's defence team but also public prosecutor Pedro Horrach, who has branded the charges "sly" and "inquisitorial".
- 'Embezzlement, money-laundering' -
Horrach had earlier called for Cristina to be just a witness in the case. Media quoted him on Friday as saying he did not know whether she was now likely to go on trial.
Urdangarin is accused along with a former business partner of creaming off six million euros ($8 million) in public funds from contracts awarded to Noos, a charitable foundation.
Cristina sat on the board of Noos and Urdangarin was its chairman.
Investigators suspect that a separate company jointly owned by the couple, Aizoon, served as a front for laundering the embezzled money.
Summoned by Castro in February, Cristina turned up smiling at the court and told the judge she had simply trusted her husband and had no knowledge of his business affairs.
Castro grilled Cristina in a six-hour hearing over accounts that indicated Aizoon money was used for personal expenses, including work on the couple's Barcelona mansion, dance lessons and Harry Potter books.
A mother of four with a master's degree from New York University, Cristina was once considered untouchable as a member of the royal family.
But the so-called Noos affair fanned public anger against the monarchy and the ruling class during the recent years of economic hardship in Spain.
The scandal overshadowed the final years of the reign of Juan Carlos, who helped guide Spain from dictatorship to democracy after the death in 1975 of General Francisco Franco.
Juan Carlos, 76, tearfully abdicated in favour of his son in June.
Urdangarin and Cristina have been excluded from royal activities since 2011 when the first allegations against him emerged.
The princess works for a charitable foundation run by La Caixa bank. She was based in Barcelona until the foundation posted her to Geneva last year.
The couple's Barcelona mansion, which reportedly cost around six million euros ($8 million), has been impounded by the courts.