VILNIUS, April 15 (Reuters) - Lithuania’s government said on Monday it would ask the prosecution service to investigate whether the central bank failed in its oversight of the banks that set the local interbank rate during the 2008-2009 financial crisis, when rates spiked.

The head of Lithuania’s banking association said the request to prosecutors “has all hallmarks of being politically motivated”, ahead of an election in which Prime Minister Saulius Skvernelis is running to become president.

The government’s decision was based on a central bank staff report highlighting opportunities for commercial banks to benefit from rigging the VILIBOR rate at which banks lent to each other in litas, the currency until Lithuania joined the euro zone in 2015.

The report provided no evidence that such manipulation had taken place, however.

“A lot of people who had mortgages were harmed during the VILIBOR story,” Skvernelis told reporters after the government vote. The government wants prosecutors to see if mortgage holders should be compensated for the extra interest payments they made as the VILIBOR rate rose between late 2008 and early 2010.

A number of banks were fined heavily for rigging the London Interbank Offer Rate (LIBOR) in the years prior to the financial crisis.

Lithuania’s central bank governor Vitas Vasiliauskas said the bank would cooperate with any investigation.

“The central bank’s position is unchanged,” he said. “Our position is that VILIBOR changes were caused by economic factors.”

One of Skvernelis’s major rivals for the presidency, Ingrida Simonyte, was finance minister during the economic crisis and later deputy governor of the central bank.

Another candidate for the presidency, Gitanas Nauseda, was an adviser to the president of SEB Lithuania, the top Lithuanian bank, during the crisis.

“The topic (of possible VILIBOR manipulation) is being escalated in a biased way, likely in order to attract the sympathy of voters,” said banking association head Mantas Zalatorius.

“As far as we know, both the central bank and the anti-trust authority have investigated the allegations in 2012-2013 and did not find any grounds to support them.”

The 2012 central bank staff report estimated that the spike in VILIBOR rate between late 2008 and early 2010 resulted in 203 million euros ($230 million) in extra interest paid by mortgage loan holders. ($1 = 0.8841 euros) (Reporting By Andrius Sytas; Editing by Simon Johnson and Hugh Lawson)