The police said they had seized Monsignor Nunzio Scarano's luxury 17-room apartment as well as nearly €9.0 million on current accounts, including €2.2 million held in the Vatican bank.
"This is very significant," the police said in a statement, a reference to unprecedented levels of cooperation between Vatican and Italian judicial authorities on a high-profile financial crime case.
The police said a priest in Scarano's hometown of Salerno who was an aide to the monsignor, Father Luigi Noli, has also been charged and put under house arrest.
A total of 52 people are being investigated in the case, including a notary who allegedly helped organise the money laundering scheme and lawyers, doctors and businesspeople who are suspected of making use of it.
Scarano is accused of taking cheques marked "Donation for the Poor" and in return giving cash from accounts at the Vatican bank, officially known as the Institute of Religious Works or IOR under its Italian acronym.
The police said they had also seized two bank accounts at a branch near the Vatican of Italy's UniCredit, one in Scarano's name and the other belonging to a company in which the prelate held 99 percent of shares.
One of the cash withdrawals made by Scarano and traced by police was for €588,248 and the police said he gave it to 50 people and used it to pay back a mortgage.
They said they managed to find at least five million euros that Scarano "had at his disposal" and alleged he made extensive property investments in Salerno.
The prelate's lawyer, Silverio Sica, said his client was in a depressive state and has made a request for him to be able to visit a psychiatrist.
The police said their suspicions were first aroused in January 2013 when Scarano reported a theft from his home of "several million euros' worth of valuables" -- a sum they said was "significantly disproportionate" to his declared income.
Scarano was arrested in June of last year on suspicion of being an intermediary for suspect payments from Monaco to Italy, carried out through the Vatican bank.
The clergyman has since been suspended from his duties as chief accountant for APSA, the organisation that manages the Vatican's vast real estate portfolio.
Investigators said Scarano used IOR accounts to make transfers to friends and attempted to repatriate from Switzerland 20 million euros that were untaxed, on behalf of a family of ship owners from Naples.
Scarano has defended himself saying that the payments were intented to build an old people's home in Salerno.
He has since been released from prison and placed under house arrest and his trial opened in December last year.