Milan prosecutors have put Paolo Scaroni, head of Italy's Eni, under investigation in a probe into alleged bribes by Saipem, in which Eni is the largest investor, to win contracts in Algeria, the company said.

Two judicial sources with knowledge of the situation had earlier on Thursday told Reuters that Scaroni was being investigated in a probe centred on the contracts worth $11 billion won by Saipem.

Saipem, Europe's biggest oil service group, is 43% owned by Eni, the oil and gas major which is in turn controlled by the Italian state. Eni is Italy's biggest listed group.

"Eni acknowledges that the prosecutor has decided to extend the investigation to include Eni and its chief executive officer," Eni said in a statement. "Eni and its CEO declare themselves totally unrelated to the object of investigation."

The company also said Scaroni's house and Eni offices had been searched, confirming what the sources had said.

The investigation is into allegations that Saipem paid a bribe to secure the Medgaz and Mle contracts in Algeria in a joint venture with state-owned energy group Sonatrach.

Scaroni, who has been at the helm of Eni since June 2005, is one of Italy's most prominent business executives. Prior to Eni, he was in charge of the country's biggest utility Enel .

Former long-standing Saipem CEO Pietro Franco Tali resigned in December after it emerged that Milan prosecutors had opened an investigation into the group's business in Algeria.

The probe also cost the job of Eni Chief Financial Officer Alessandro Bernini, seen by many analysts as Scaroni's right hand man.

Last week, Saipem shocked investors when its newly-installed management slashed 2012 profit guidance and gave a grim outlook for this year, triggering a 34% fall in its shares.

Italy's financial regulator subsequently asked its British counterpart to probe a sale of Saipem stock before it issued the warning, a source close to the Italian watchdog said.