Dhaou Meskine, secretary-general of the Council of French Imams, along with his son Malek, were being investigated for suspicious movements of funds between bank accounts of Muslim associations they managed and several foreign countries, the source said.

They have not been able to explain the origin of the funds and are thought to have misused donations received by their organisations in a campaign to buy holiday properties in Normandy, the source added.

The Tunisian-born imam, whose mosque is located in the northern Paris suburb of Clichy-sous-Bois hit by riots by unemployed youths last autumn, is the founder of the first private Muslim school in France.

He was one of the Muslim leaders consulted by Nicolas Sarkozy, the interior minister, about setting up France's Muslim Council in 2003.

Finance tip-off

The Council of French Imams has protested against his arrest, which it said showed contempt for the five million-strong Muslim minority in France.

"We have known him well enough for more than 20 years to affirm that the accusations against him are fallacious"

Council of French Imams

"We have known him well enough for more than 20 years to affirm that the accusations against him are fallacious," it said.

The prosecutor's office has asked that the two men be released under judicial control. They were arrested on Monday with about 15 of their relatives, who were released without charge.

The preliminary inquiry was opened by the Paris court several months ago after a tip from Tracfin, the anti-money laundering branch of the finance ministry.

Last week, a French court convicted 25 people for planning attacks in France, possibly using chemical weapons, and of recruiting fighters to send to Chechnya and Afghanistan.