Antonio Fazio, the Bank of Italy governor, last night suffered his biggest blow inthe fight to keep his job when prosecutors in Rome revealed that they had secretly placed him under investigation in early August.

They suspect Mr Fazio of abuse of office in a cross-border takeover controversy in which critics say the governor improperly favoured an Italian bank run by one of his friends.

The announcement injected fresh tension into a dispute that has put the bank and government at loggerheads, sparked the resignation of a finance minister and played havoc with Italy's institutions.

Mr Fazio, who is set to be questioned next week, has not been formally charged with a crime.

The central bank governor has shown no signs of yielding to pressure for his resignation and has ignored calls by Silvio Berlusconi, the prime minister, for him to step down.

Mr Fazio scored a victory over his opponents yesterday when the Bank of Italy's board of directors expressed support for him, closing the one route available under Italian law to force his dismissal.

The governor denies wrongdoing in the takeover battle that saw Banca Popolare Italiana try to outmanoeuvre ABN Amro of the Netherlands in a bid for Banca Antonveneta.

The Italian government has no power to sack Mr Fazio because the Bank of Italy is independent and he serves an indefinite term of office.