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A former senior aide to Prime Minister Binyamin Netanyahu was arrested in connection with a fraud inquiry, police said on Friday.

A police statement said the aide -- named by media reports as Ari Harrow, Netanyahu's former chief of staff -- was detained and questioned on Thursday evening "as part of an ongoing investigation".

Haaretz said Israeli police launched a probe last week into Harrow's suspected involvement in the fictitious sale of a business supposedly worth $3 million.

The 43-year-old American born businessman was reportedly tasked in 2002 with raising overseas funds for Netanyahu.

Haaretz said Harrow was also being investigated over these funds.

Following weeks of speculation, Attorney General Avichai Mandelblit said Sunday he had ordered an investigation into a "matter" involving Netanyahu, without providing details.

"We stress that this is an examination and not a criminal investigation into the prime minister," his office said.

Netanyahu last month acknowledged receiving money from French tycoon Arnaud Mimran, who was sentenced to eight years in prison over a scam amounting to 283 million Euro ($315 million US) involving the trade of carbon emissions permits and the taxes on them.

In May, the Israeli state comptroller issued a critical report about Netanyahu's foreign trips, some with his wife and children, between 2003 and 2005 when he was finance minister.

AFP contributed to this report