Montrealers have long assumed a fair amount of dirty money sloshes through their city's politics, but only lately are they learning just how bad things are.

This week the mayor had to resign, a mayor of a neighboring town may soon follow him, and taxpayers don't know whether to laugh or weep over the revelation of a safe so bulging with cash that a campaign fundraiser needed help shutting the door.

Montreal, population 1.7 million, is Canada's second largest city, and Mayor Gerald Tremblay is the first elected official to resign as a public inquiry hears testimony detailing graft and ties to organised crime in the construction industry.

Martin Dumont, who worked for Tremblay's Union Montreal party, testified that the mayor knew about illegal financing within his political party and didn't care.

Tremblay, mayor for 11 years, has denied any knowledge of wrongdoing and says he was let down by underlings. There is no suggestion he profited personally and in resigning on Monday said he was doing so to spare his city further difficulty.

Frank Zampino, once a top adviser to Tremblay, faces fraud charges and current employees have been suspended.

Dumont testified that while working for the party, fundraising official Bernard Trepanier called him into his office to help him shut the safe door. Dumont said he joked to Trepanier that he should consider getting a bigger safe.

Trepanier is now accused of collecting kickbacks from construction companies on behalf of the party.

Gilles Surprenant, a retired city engineer, testified to the inquiry about collecting more than US$700,000 ($63 million) in kickbacks on rigged sewer contracts over a 20-year period.

The inquiry heard the kickbacks became jokingly known as "TPS," for "taxe pour Suprenant." TPS is the French initials for Canada's national sales tax.

Suprenant said he gambled away about US$250,000 at a Montreal casino, and claimed that in retrospect he regarded the loss as a repayment to society, because the casino is government-owned.

He said he turned over US$122,000 over to authorities and lent US$150,000 to a construction boss. He said he spent the rest on his children and on home improvements. He also received trips, hockey and concert tickets, booze, meals and rounds of golf construction bosses gave him.

He described golfing twice with Vito Rizzuto, a Montreal mob boss. The inquiry has also seen surveillance video of Vito's father, Nicolo, stuffing cash into his socks at meetings with construction-industry bosses. Nicolo Rizzuto was killed by a sniper in 2010.

Also figuring in the inquiry is Gilles Vaillancourt, mayor of neighboring Laval for the past 23 years. A witness has claimed he accepted kickbacks from construction contracts. Vaillancourt's office and home have been raided repeatedly by Quebec's anti-corruption unit.

Vaillancourt, known as the "King of Laval", is on leave for unspecified medical reasons, while denying the allegations. City officials say he is weighing his political future.

The revelations have a broader context than city politics. The Liberal government fell in September elections, tarnished by corruption suspicions, and the independence-seeking Parti Quebecois took over Canada's French-speaking province.

Corruption has become such an issue that the new government is introducing a law limiting political contributions to US$100. On Thursday, Montreal unions issued an open letter asking the public not to judge them by the actions of a few employees.

Antonia Maioni, a political science professor at Montreal's McGill University, said the investigation was having a powerful effect, positive and negative.

"On the one hand people are shocked and horrified. On the other hand there is sort of this collective relief that finally this commission is doing the hard and dirty job of getting to the bottom of it," Maioni said.