He is accused of approving a licensing bid by Digital Broadcasting Corporation - a radio station of which penthouse owner Bill Wong Chor-bau is a major shareholder - and of proposing the flat's interior designer for nomination to the city's top honours.

Tsang issued a statement declaring he had "a clear conscience" and "every confidence the court will exonerate" him.

Outside court, Tsang's wife, Selina Tsang Pou Siu-mei who has known her husband for 56 years, said she was "disheartened" and had words of support for the man who had spent 45 years serving the public.

"[Donald] is, beyond a shadow of a doubt, a man of honesty and integrity," she said. "We longed for peace and tranquility in retirement, away from politics. Instead, we now find ourselves dragged into a whirlpool."

She also revealed, without specifying the culprits, that the couple had suffered harassment every day in the past three years.

At yesterday's court hearing, lasting about 15 minutes, Tsang appeared with his signature burgundy bow tie, represented by barrister Peter Duncan SC.

The first charge alleged that between November 2, 2010 and January 20, 2012, Tsang, without reasonable excuse, failed to tell Exco he was in talks with Wong, a major shareholder of Wave Media, to lease the penthouse at East Pacific Garden.

Tsang allegedly approved applications by Wong's company - later renamed DBC - for a digital broadcasting licence, the surrender of its AM radio licence, and the appointment of Professor Arthur Li Kwok-cheung as DBC director and board chairman.

Tsang also failed to disclose a sum of 800,000 yuan his wife paid to another company where Wong was a shareholder in November 2010, the court heard.

The second charge accuses Tsang of suggesting that interior designer Barrie Ho Chow-lai be nominated under the city's honours and awards system between December 2010 and July 2011.

He allegedly did not tell the then permanent secretary for the Chief Executive's Office, Development Bureau and Honours and Non-official Justices of the Peace Selection Committee that Ho was tasked with the flat's design.

After the charges were read out, Tsang told Magistrate So Wai-tak twice: "I understand."

He was granted HK$100,000 bail on the condition he would inform the court of any change of residence 24 hours beforehand.

He was not to interfere with the prosecution's 24 witnesses, So said, and must inform the Independent Commission Against Corruption 24 hours before leaving the city. Tsang will return to Eastern Court on November 13, after which the case is expected to be transferred to the High Court.

Reporters began to gather outside the ICAC's North Point offices shortly before noon as news of the prosecution of the former chief executive spread.

AS IT HAPPENED: Former Hong Kong leader Donald Tsang bailed by court on misconduct charges over luxury flat lease

Chief Secretary Carrie Lam Cheng Yuet-ngor had nothing but praise for Tsang, saying she was "privileged" to have worked closely with him before.

"I can tell everyone: in his service for society, Mr Tsang spared no effort in working hard for Hong Kong," Lam said.

Like the Tsangs, she is a Catholic and hoped the couple would find peace in their faith in the meantime. She added: "I will pray for him every day."

Secretary for Justice Rimsky Yuen Kwok-keung said there were no political considerations in the prosecution decision.

Ho's office told the it had no comment. Wong also declined comment since the legal proceeding had begun, but stressed he had only leased a flat to Tsang.