* Mayor Orsoni has agreed 4-month plea bargain - sources
* Scandal highlighted Italy's battle with corruption
* Affair has embarrassed PM Renzi's PD party
* Orsoni says he did not handle campaign funds
By Sara Rossi
MILAN, June 12 (Reuters) - The centre-left mayor of Venice was freed from house arrest on Thursday a week after police detained him as part of a probe into kickbacks connected with the Mose project to protect the canal city from high tides.
Giorgio Orsoni, who told a prosecutor he was innocent in the case, agreed to a four-month sentence in a plea bargain which is waiting for court approval, legal sources said, but he is unlikely to serve any jail time.
He is now back in his post after a temporary suspension.
The scandal around the 5-billion-euro ($6.8-billion) project has shone a spotlight on Italian corruption, a month after seven managers and ex-members of parliament were arrested in Milan in early May for alleged attempts to influence public tenders in Milan's Expo 2015.
The project is known by its Italian acronym Mose - which translates into English as Moses.
Orsoni, a university professor whose electoral campaign was backed by the Democratic Party (PD) of Prime Minister Matteo Renzi, told a televised news conference on Thursday he had always run Venice "in the best way possible".
"I made a lot of enemies ... and this is the price I am paying," he said.
Thirty-five warrants or requests for arrest proceedings were issued in the investigation into graft in the project, a huge series of mobile barriers designed to protect the lagoon city of Venice from floodwaters and rising tides. Dozens more people were placed under investigation.
Orsoni was alleged to have received 560,000 euros in illicit contributions to his mayoral campaign in 2010 from the consortium behind the project.
He said at the news conference he could not have known the funds coming in to support his campaign were illegal.
"My election campaign was not run by me nor an electoral committee but by an agent who raised the funds," he said. "The main organiser of the campaign was the Democratic Party."
Other prominent figures implicated included an aide to former Economy Minister Giulio Tremonti and the right-wing former governor of the Veneto region, indicating that the probe potentially affects politicians of all stripes, reminiscent of the "Bribesville" scandal that rocked Italy 20 years ago.
Italy ranks 69 out of 177 countries in Transparency International's corruption index, below most European peers.
Renzi has pledged to unveil ad-hoc anti-corruption measures on Friday. ($1 = 0.7345 Euros) (Writing by Isla Binnie; Editing by Sonya Hepinstall)