Pope Francis has given the new commission carte blanche to investigate the troubled Vatican bank. Photo: BBC

Monsignor Nunzio Scarano works in the Vatican's financial administration. A secret service agent and a financial broker have also been arrested.

They are suspected of trying to move 20m euros illegally into Italy.

Pope Francis ordered an unprecedented internal investigation into the bank's affairs in the wake of recent scandals.

Monsignor Scarano has been under investigation by Italian police for a series of suspicious transactions involving the recycling of a series of cheques described as church donations through the Vatican Bank.

Earlier this month, the Pope named a trusted cleric to oversee the management of the bank, which has been beset by allegations of money-laundering.

Officially known as the Institute for the Works of Religion, the bank is one of the world's most secretive. It has 114 employees and $7.1bn (£4.6bn; 5.4bn euros) of assets.

Pope Francis has given the commission carte blanche, bypassing normal secrecy rules, to try to get to the bottom of scandals which have plagued the bank for decades.

Traditionally, the Vatican Bank has refused to co-operate with Italian authorities investigating financial crime on the grounds of the sovereign independence of the Vatican city state, says the BBC's David Willey in Rome.

But Pope Francis has shown that he is now determined to get to the bottom of long-standing allegations of corruption and money-laundering by the bank, our correspondent adds.

The Institute for the Works of Religion was a major shareholder in the Banco Ambrosiano, a big Italian bank which collapsed in 1982 with losses of more than $3bn.

Its chairman, Roberto Calvi, was found hanging from Blackfriars Bridge in London - in a murder disguised as a suicide. Mr Calvi had close relations with the Vatican.