Police in Malta have arrested Keith Schembri, the former prime minister Joseph Muscat’s chief of staff, as part of an investigation into money laundering of funds derived from kickbacks on sales of Maltese passports.

Schembri was arrested just after midnight on Tuesday, hours after a court issued an order for all his assets and those of his family and companies to be frozen, police sources confirmed.

Schembri, who has always denied wrongdoing, resigned in November, shortly before Muscat announced he was too was stepping down.

The resignations followed the arrest and arraignment of Yorgen Fenech, suspected by police of being the mastermind in the 2017 murder of anti-corruption journalist Daphne Caruana Galizia. Fenech has denied complicity in the killing.

The allegations of kickbacks of up to €100,000 (£91,500) from passport sales and the laundering of the funds were made three years ago by the then opposition leader Simon Busuttil. A magisterial inquiry into the allegations was concluded earlier in September but its outcome was not revealed.

Malta started selling passports to wealthy foreigners in 2014, with strong take-up mostly from rich Russians, Chinese and others in the Gulf.

In a court application through his lawyers shortly after his arrest, Schembri protested that he had not been made aware of the contents of the inquiry report.