Luxembourg's state prosecutor said it had requested a judicial inquiry into allegations of money laundering by Malaysia's sovereign wealth fund 1Malaysia Development Bhd (1MDB).
Prosecutors said the inquiry was launched after concrete evidence emerged of the misuse of funds held by the Malaysian government through different offshore accounts in Singapore, Switzerland and Luxembourg.
"The case particularly concerns discovering the origins of four transfers in 2012 and one at the start of 2013 for a total of several hundreds of million of dollars," the statement said.
Malaysian Prime Minister Najib Razak is under pressure to explain why he accepted hundreds of millions of dollars in mysterious overseas payments through the same fund.
Support for Malaysia's PM Najib dwindles after scandal
Najib, 62, has repeatedly denied that the money was siphoned off from 1MDB, a now-struggling state firm, and said he was the victim of a political conspiracy.
However, his government now acknowledged that he received $681m.
'Gift from Saudi Arabia'
The government said it was a gift from the Saudi royal family - most of which was given back - to "promote moderate Islam".
That explanation is yet to be confirmed by Saudi Arabia and is widely dismissed in Malaysia as a cover-up.
Separately, the Wall Street Journal reported on Thursday that Najib spent about $15m on personal items, using money from his bank accounts where cash from 1MDB is suspected to have been funnelled.
Among the items paid for from Najib's accounts were purchases of clothes, jewellery and a car, the US-based newspaper said, adding it saw documents that contained bank transfer information involving stores in the US, Malaysia, Italy and other places.
Najib's brother received $7m in funds that were transferred to his personal bank account from Najib's before the country's 2013 elections, the Journal also said, citing investigation documents.
The funds for 1MDB were disbursed to ruling party politicians, the newspaper reported.