HARARE (Reuters) - A senior official in Zimbabwe Prime Minister Morgan Tsvangirai's party pleaded not guilty on Monday to terrorism charges in a trial that has raised tensions in the unity government formed early this year.

Roy Bennett, treasurer-general in the Movement for Democratic Change (MDC), was arrested in February on charges of illegal possession of arms for purposes of committing terrorism, insurgency and banditry.

Bennett's lawyer said he viewed the case as "political persecution".

Bennett is the MDC's nominee for the post of deputy agriculture minister but President Robert Mugabe has refused to swear him, saying that he should be acquitted first.

Asked on Monday by High Court Judge Chinembiri Bhunu how he pleaded to the charges, Bennett said: "Not guilty, my Lord."

Attorney General Johannes Tomana told the court that Bennett, together with accomplice Peter Hitschmann, were involved in an anti-government plot to destabilise the country between 2002 and May 2006.

Tomana said Bennett was the chief financier, at one time depositing $5,000 in Hitschmann's account to purchase arms, including rifles, 8 machine guns, ammunition and grenades.

"The grand plan included assassinating certain individuals in government," Tomana said.

The plot was supposed to be carried out in March 2006 when Mugabe was attending a birthday function in the eastern city of Mutare.

Beatrice Mtetwa, Bennett's lawyer, said Bennett denied all the charges.

"The accused will contend that the state summary discloses no offence and that this is continued political persecution from his rivals who continue to stop his participation in the unity government," she said.

Judge Bhunu refused a request by defence lawyers for him to step aside from the trial. The defence says he previously made certain comments that could be prejudicial to Bennett's case.

State prosecutors have indicated that Hitschmann -- who was jailed for two years for possessing dangerous weapons but was acquitted on the more serious terrorism charge -- will give evidence that will implicate Bennett.

Defence lawyers say Hitschmann's testimony will contradict a sworn affidavit and statements he made to the High Court in 2006 and that he has also made clear that he is not prepared to be a state witness.

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