Italian prosecutors have launched an investigation into the Vatican bank's top executives for allegedly violating money laundering legislation.

Prosecutors ordered the seizure of €23m belonging to the Istituto per le Opere di Religione and opened an inquiry against chairman Ettore Gotti Tedeschi and another top executive.

The Vatican Secretariat of State, which heads up the Vatican administration, denied any wrongdoing by IOR, saying in a statement that it was ‘perplexed and astonished’ at the investigation.

Both executives are accused of violating laws put in place in 2007 that have tightened rules on disclosure of financial operations to the Italian central bank in a bid to stamp out money laundering.

The Vatican said the required information was already in the hands of the Bank of Italy.

‘The Holy See's authorities' evident willingness to be fully transparent regarding IOR's financial operations is well known,’ it added.

According to earlier reports in the Italian press, investigators suspect that Italian tax residents are using transfers of money through the IOR, which has special Vatican offshore status, to hide fraud and tax evasion.

The Vatican bank was tainted by a series of fraud scandals in the 1980s.

The current investigation was launched after the financial intelligence office at the Bank of Italy in September froze two IOR operations it deemed suspicious.

The first one was a transfer of €20m to JP Morgan Frankfurt, while the other one was a €3m transfer to Italian bank Banca del Fucino, Italian media reported.

The Vatican said the operations were transfers of money between different IOR bank accounts.

IOR, which manages bank accounts for religious orders and Catholic associations, is not bound by the same regulation as Italian financial institutions.

‘IOR authorities have long worked and met with the Bank of Italy and with the competent international organisations’ to place the Holy See on a money laundering and terrorism white list, the Vatican said.

In September, the Bank of Italy said it would impose stricter controls on IOR and told Italian banks they should deal with IOR as if it was a non European Union bank.

The Vatican Secretary of State and Vatican number two, Tarcisio Bertone, is also the head of the commission of cardinals that oversees IOR's operations.

The commission was set up after the collapse in 1982 of a private Italian bank, Banco Ambrosiano, amid accusations of links to organised crime and political militancy.

IOR, led at the time by US Archbishop Paul Marcinkus, was the main shareholder in Banco Ambrosiano.

In September 2009 the Vatican nominated Mr Gotti Tedeschi, Spanish banking giant Santander's representative in Italy, as IOR's new chairman.

The appointment of Mr Gotti Tedeschi, an expert in the ethics of finance, was greeted at the time as a move towards greater transparency at the IOR.