The former head of Monte dei Paschi's finance department, who is at the centre of an inquiry into alleged fraud and bribery at Italy's third-largest bank, has been released from jail, his lawyer said.

Gianluca Baldassarri was the first person to be arrested in a widening scandal that has rocked the word's oldest bank.

On Saturday, a judge in Siena accepted a request from his lawyers to have the former executive released as a result of a procedural error related to his arrest on February 14.

Prosecutors appealed against the judge's decision.

State prosecutors are investigating Monte dei Paschi's costly acquisition of smaller rival Antonveneta from Santander in 2007 as well as a series of loss-making derivative and structured finance trades dating back to 2006-09.

They accuse Baldassarri, who left Monte dei Paschi in 2012, of helping to mislead regulators over the true nature of a secret derivatives contract that was found in a safe by the bank's new management in October 2012.

That accusation has been extended to the bank's former Chairman Giuseppe Mussari and its former Director General Antonio Vigni, who were both under investigation for other alleged offences in the case.

Italian financial police on March 5 searched premises connected with Monte dei Paschi di Siena as part of a new investigation into suspected insider trading.

Baldassarri's lawyer, Filippo Dinacci, said his client, who was questioned by prosecutors on Saturday, had no intention of leaving the country and will stay in contact with the authorities as the investigation continues.

(Reporting by Silvia Ognibene; Writing by Antonella Ciancio; Editing by Daniel Magnowski)