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CHICAGO (AP) -- With Illinois Gov. Rod Blagojevich defying calls for his resignation, state officials pondered reducing his power or forcing him from office amid an intensifying criminal investigation that has made him arguably the most toxic politician in America.

Legislative leaders in the state capital moved forward Wednesday with several fronts to deal with Blagojevich, who returned to his office in downtown Chicago a day after he was arrested on charges that he put President-elect Barack Obama's U.S. Senate seat up for sale.

The first fallout from the scandal also emerged, with U.S. Rep. Jesse Jackson Jr. denying any misconduct while confirming that he is the Senate candidate mentioned in the federal charges as someone Blagojevich thought would pay money to be appointed to the seat. Jackson, the son of the Rev. Jesse Jackson, said he had been assured by prosecutors he was not a target of the investigation.

Blagojevich's decision to show up for work like it was another day at the office angered much of the state's political establishment, and Obama and U.S. Senate leaders demanded that he step down. The prospect that the second-term Democratic governor might still try to appoint someone to the Senate also loomed.

"He appears to listen to no one, and his conduct becomes more outrageous as time goes on," said Steve Brown, spokesman for Illinois House Speaker Michael Madigan.

Legislative leaders planned a special session Monday to strip Blagojevich of his power to pick a new U.S. senator, putting the decision in the hands of Illinois voters instead. Lawmakers also prepared to discuss the possibility of impeachment, and the attorney general researched whether there is any way to declare Blagojevich unfit to hold office.

"I just don't foresee him being the governor indefinitely with this cloud hanging over him," Republican Sen. Christine Radogno said. "There is an awful lot of impetus to move him out of the way."

Blagojevich's lawyers have insisted he is innocent, and stressed that he still has important work to do for the state of Illinois.

Blagojevich spokesman Lucio Guerrero said some of the governor's work Wednesday involved talking with staff about the budget and a short-term borrowing plan so the state can get its hands on $1.4 billion to pay some outstanding bills.

"At the end of the day, the top priority for our office is to serve the people, and we have not lost sight of that, nor will we lose sight of that," said spokesman Kelley Quinn, calling it "business as usual" on Wednesday, the governor's 52nd birthday.

A day earlier, FBI agents arrested Blagojevich at his home and took him away in handcuffs. Prosecutors released a thick document that included excerpts of wiretapped conversations in which the governor allegedly schemed to enrich himself by offering to sell Obama's Senate seat for campaign cash or a lucrative job inside or outside government.

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