The alleged fraud is the biggest since Mao Zedong founded modern China

China's financial sector was rocked earlier this month when Wang Xuebing, one of the country's most internationally prominent bankers, was put under investigation in connection with credit problems during his tenure as head of the Bank of China.

The bank was later fined $21m by US and Chinese regulators for irregularities at its New York branch.

The report in the 21st Century Business Herald said investigations in the US and China had uncovered systematic fraud by officials at two Bank of China branches in Guangdong province.

It quoted an unnamed source at China's National Audit Bureau as saying six billion yuan - around $720m - was transferred into accounts abroad over a 10-year period.

The report said the case was uncovered in October and a number of local officials were now under investigation.

The Bank of China has generally been seen as the most competitive and efficient of the four state-run commercial banks which dominate China's finance industry.

Regulations to be tightened

But the entire state banking sector is still struggling to deal with bad loans, officially estimated at 20% of total loans.

There have been rumours of vast amounts of money being loaned without proper records being kept.

China's Central Bank on Monday said it would tighten regulation of the country's commercial banks but the recent problems have further damaged the credibility of the banking sector, which will face a sharp increase in competition from foreign-funded banks over the next five years as China lifts restrictions in line with World Trade Organisation rules.