Taiwanese prosecutors said Tuesday they were investigating allegations that former president Chen Shui-bian, facing life in jail for graft, had laundered money in the Pacific island nation of Palau.

"We have received tip-offs, and we are looking into whether the claims are true or not," said a spokesman for the special prosecutor's office charged with investigating high-level corruption.

Taiwanese media have reported that Chen allegedly used the presidential jet to smuggle cash to Palau during a state visit there in 2006 and that the money was later wired to the United States.

Palau's President Johnson Toribiong also told Taiwan's TVBS news channel Monday that 41 million US dollars were wired in 2005 to a Palauan bank that folded two years later.

"I do not know whether that's connected to (former) president Chen Shui-bian in any way," Toribiong said, adding the origin and whereabouts of the money are unclear.

Palau is one of the 23 countries that formally recognise Taipei instead of Beijing.

Chen's office reiterated that he had never transported money abroad on his presidential jet during his 2000-2008 term.

The latest probe came as the Taipei district court on Tuesday began to hear a separate case against Chen for allegedly embezzling secret diplomatic funds.

The 59-year-old was sentenced to life in jail by a district court in September for embezzling state funds, laundering money, accepting bribes and committing forgery. The High Court is currently hearing his appeal.

Chen has dismissed his conviction as a political vendetta by the China-friendly Kuomintang government for his lifelong push for the island's independence.