CORRECTED-India DLF shares drop after improper deals accusations; claims denied

(Corrects paragraph 3 to note India Against Corruption is the name of Kejriwal's anti-graft group, not the name of the new political party)

MUMBAI, Oct 8 (Reuters) - Shares in India's DLF Ltd dropped after anti-corruption activists accused the country's biggest property developer of improper dealings with a member of a prominent politician's family, prompting denials from the company.

The shares were down 3.8 percent as of 0429 GMT, after falling as much as 5 percent. The benchmark BSE index declined 0.26 percent.

Activist Arvind Kejriwal, along with a colleague from their anti-graft group India Against Corruption, accused DLF on Friday of arranging favourable loans and real estate transactions for Robert Vadra - the son-in-law of Sonia Gandhi, chief of India's ruling Congress Party. DLF denied the allegations.

"We would like to state that the business relationship of DLF with Mr Robert Vadra or his companies has been in his capacity as an individual entrepreneur, on a completely transparent and at an arm's length basis," DLF said in a statement on Saturday.

"Our business relationship has been conducted to the highest standards of ethics and transparency, as has been our business practices, all around."

Vadra was quoted by the Times of India newspaper calling the accusations "utterly false, entirely baseless and defamatory."

(Reporting by Rafael Nam; Editing by Ryan Woo)