Malaysia on Tuesday opened an inquiry into huge losses by the central bank more than two decades ago, a move the opposition says is aimed at derailing former Prime Minister Mahathir Mohamad's efforts to overthrow the government.

A five-member panel will look into the alleged multi-billion dollar losses incurred by Bank Negara Malaysia through foreign exchange trading in the early 1990s, during Mahathir's tenure as prime minister.

The government-appointed Royal Commission of Inquiry will start its 10-day hearing on August 21 and have the power to recommend actions against anyone found to be involved in causing the losses.

Mahathir, 92, led the country for 22 years before stepping down in 2003. He has been spearheading calls for Najib Razak, the current prime minister, to resign over a multi-billion dollar financial scandal in indebted state fund 1MDB. The fund is being investigated in several countries for money laundering. Najib has denied the allegations.

The former prime minister now leads an opposition coalition aimed at removing Najib in general elections due in mid-2018.

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Mahathir's supporters have criticised the inquiry as a ruse to remove a political opponent as the country looks towards looming elections.

"It is a political vendetta launched against Mahathir by Najib in order to create a diversion from the scandal-hit state investment fund 1MDB," veteran opposition legislator Lim Kit Siang told AFP news agency.

"I think they are trying to punish, penalise and prosecute Mahathir in time for the next general elections."

Mahathir has said the inquiry is a "desperate effort by Najib to silence his detractors". He and other opposition leaders have urged the government to also set up a formal inquiry into losses at 1MDB.

Malaysia's government has said it found no criminal wrongdoing at 1MDB. But the fund has been at the centre of investigations in the United States and several other countries amid allegations of a global embezzlement and money-laundering scheme.

Najib started the fund shortly after taking office in 2009 to promote economic development projects, but it accumulated billions of dollars in debts.

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Few details have emerged of the scale or nature of the alleged forex losses, but reports in local media have suggested that the central bank lost around $10bn.

The inquiry panel can make recommendations on action to be taken against those found guilty, but it is up to the attorney general to prosecute.

Source: Al Jazeera and news agencies