TOKYO (AP) _ Police raided the headquarters of Toshiba Corp. and Mitsubishi Electric Corp. on Tuesday _ the latest Japanese corporate giants tainted by allegations of making illegal payments to a racketeer.

The raids came a day after police arrested one executive at each corporation on charges of paying off Terubo Tei, a 53-year-old racketeer, to ensure that the internationally known electronics companies' annual shareholders meetings ran smoothly.

``What a disgraceful thing it is. This is sheer foolishness,'' Prime Minister Ryutaro Hashimoto told reporters.

Hashimoto said he was worried that the scandal would cause further damage to Japan's already beleaguered stock market.

Television footage showed 15 Tokyo police officers entering the Mitsubishi building in central Tokyo. About the same number entered Toshiba's head office to gather evidence on the alleged payoffs.

A Japanese type of racketeers, called ``sokaiya,'' buy a token amount of a company's stock and threaten to disrupt shareholders meetings by bringing up embarrassing information about failed investments or the personal lives of executives. They also demand money from companies in exchange for pressuring other racketeers to keep quiet.

The arrested executive from Toshiba, Takeshi Watanabe, 55, was suspected of paying $16,900 to Tei over a three-year period from 1995, Tokyo police said. Mitsubishi Electric's Yoshiki Sugiura, 47, was suspected of funneling $37,000 to the racketeer over the same period.

Spokesmen for both Toshiba and Mitsubishi said the companies would cooperate with investigators.

Tei already had been arrested on charges of receiving illegal payments over the past two years from Mitsubishi Motors Corp., a major Japanese automaker. Three Mitsubishi Motors officials have been arrested for allegedly funneling $72,500 to him.

On Tuesday, Mitsubishi Motors announced that its president, Takemune Kimura, and chairman, Hirokazu Nakamura, will resign to take responsibility for the payoff scandal.

Katsuhiko Kawasoe, a managing director, will take over as Mitsubishi president on Nov. 27. Kimura will become an adviser, mainly a ceremonial post.

It is common for top executives to step down at Japanese companies in a gesture of contrition for public relations damage incurred by scandals.

In a bid to combat racketeering problems in the early 1980s, Japan made it a crime for companies to pay extortionists, but cutting corporate ties with racketeers has proven difficult. There are still about 1,000 groups specializing in corporate racketeering across the nation, according to police estimates.

In a related development, Japan's 500-member lower house unanimously passed a bill designed to strengthen penalties against corporate racketeers and company executives who bow to threats and make payments to sokaiya.

The new bill will increase penalties for racketeers who demand illicit payoffs to a maximum three-year sentence or a fine of up to $24,000. Currently, the maximum punishment is six months in prison or a fine of $2,400.

The upper house will take up the bill soon, and it is expected to take effect early next year.

Among prominent arrests in recent payoff cases were executives of Japan's ``Big Four'' brokerages _ Nomura Securities, Daiwa Securities, Nikko Securities and Yamaichi Securities. Former top executives of Dai-Ichi Kangyo Bank also have been arrested in the brokerage scandal.