Italian police arrested on Thursday the former head of Monte dei Paschi's finance department, who is at the center of a fraud and bribery probe at Italy's third largest bank, two investigative sources told Reuters.

The sources said the man arrested was Gianluca Baldassarri, who left Monte dei Paschi shortly after the arrival of new chief executive Fabrizio Viola in January 2012. One of the sources said he was detained because prosecutors feared he may leave the country.

The sources said searches were under way in Milan, without specifying where these were being carried out.

Italian prosecutors seized some 40 million euros ($54 million) last week as part of their investigation. The prosecution seizure order, seen by Reuters, said the funds belonged to Baldassarri and four other people.

The five are suspected of criminal conspiracy to commit fraud, according to the prosecution document.

The finance department headed by Baldassarri is at the heart of a derivatives scandal that has rocked Monte dei Paschi, which last week put losses stemming from three derivatives trades at 730 million euros.

Baldassarri is the first person to be detained in the probe.

($1 = 0.7442 euros)

(Reporting By Silvia Ognibene, Manuela D'Alessandro, writing by Silvia Aloisi; editing by Keith Weir)