The move was prompted by allegations made by Chen during his own questioning recently that his predecessor transferred large funds abroad through dummy accounts - charges Mr Lee angrily rejected, the Apple Daily newspaper said.

Among the transactions under scrutiny is a suspected transfer of 50 million Taiwan dollars (US$2.26 million) to Mr Lee from a local stock investor via overseas dummy accounts, the newspaper said.

Prosecutors were also investigating transactions made towards the end of Lee's tenure and at the beginning of Chen's term, including one billion Taiwan dollars that had been wired to various countries including Singapore.

Prosecutors were not immediately available for comment.

Prosecutor General Chen Tsung-ming said on Friday authorities would continue to investigate Chen's alleged involvement in three other corruption cases involving financial reforms and diplomatic scandals during his presidency.

Mr Lee, who served as president between 1988-2000, was expelled by the Kuomintang for campaigning for a hardline pro-independence party several years ago.

He was branded a 'splittist' by China for seeking a separate identity for Taiwan during his tenure. Beijing fired missiles near the island in 1995 and 1996, prompting the United States to send in patrolling warships.

China still sees Taiwan as part of its territory to be reunified, by force if necessary, despite their split in 1949 following a civil war. -- AFP