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Juan Carlos' son-in-law, Iñaki Urdangarin, the husband of his daughter Cristina, is being investigated on corruption charges relating to his business activities in Palma, Majorca.
After weeks of headlines, the Palace has announced that he will no longer take part in official engagements.
Spokesman Rafael Spottrono added that his behaviour "did not seem to have been exemplary".
Iñaki, a towering athlete who was once the capitan of the national handball team, was created the Duke of Palma in 1997 on his marriage to Cristina.
Their magnificent wedding in Barcelona Cathedral was followed by the birth of four children.
A few years ago the couple moved to Washington where he works for telecoms giant Telefonica.
Aides said it was not yet known if Cristina would also step down from her official roles.
At the weekend the duke published a statement saying he "regretted" the damage caused by press reports to his family and the king "who had nothing to do" with his private activities.
His lawyer also said that his client is innocent of any wrongdoing and was "outraged" by the allegations.
The accusations centre around the Noos Institute, an non profit organisation for the promotion of sports and tourism.
As president, he is alleged to have charged local authorities hugely inflated fees for organising events and siphoning off funds to his private companies.
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