ıAllegations of corruption and tax fraud struck at the heart of Spain's royal family on Wednesday as the king's daughter, Princess Cristina, was formally named as a suspect in a court investigation.

The dramatic decision by investigating magistrate José Castro will see the princess called to give evidence at a courthouse in Palma de Mallorca, capital of the Balearic Isles, on 27 April.

The decision is a blow for King Juan Carlos, as a once model royal family begins to buckle under the weight of public scandal.

A spokesman at the king's Zarzuela Palace in Madrid expressed surprise at the decision. "The royal household is in absolute agreement with a decision by state anti-corruption prosecutors to appeal against the decision," he said.

Princess Cristina, aged 47, must explain her role as a board member of a non-profit foundation set up by her husband, former Olympic handball player Iñaki Urdangarin.

Castro said that, by lending her name and titles to her husband's business affairs, Princess Cristina may have aided and abetted his allegedly crooked dealings.

Urdangarin is under investigation for allegedly using not-for-profit companies and foundations to strike deals involving millions of euros of taxpayers money with corrupt regional officials in Valencia, the Balearic Islands and Madrid.

He also allegedly committed tax fraud and syphoned money off to offshore bank accounts and his own companies, including one co-owned by his wife.

Castro said Princess Cristina's name may have helped persuade private companies and corrupt politicians to "forget the necessary administrative channels and controls, and for her to profit – along with her husband – from that".

Urdangarin told the magistrate his wife did not know how the supposedly not-for-profit foundation where she was a board member was run. But Castro listed 14 reasons to challenge that – pointing out that deals were negotiated with politicians at the royal family's palaces and that, according to witnesses, the king had expressed his concern.

Spain's media immediately splashed the news over websites and journalists gathered outside the couple's €6m Barcelona home.

Urdangarin is reportedly struggling to come up with his share of the €8.1m bail set for him and his former business partner Diego Torres, who both deny the allegations.

Court evidence published by El País newspaper revealed that the royal secretary who works with the princess had told Castro the king did not know his daughter was involved in her husband's business dealings.

Republican deputies in parliament welcomed the decision to make the princess – who will visit the court on a Saturday so that special security measures can be set up – declare before the investigating magistrate.

"Better late than never," said the leader of the United Left coalition in parliament, Cayo Lara. "Perhaps, with this, the king's words about us all being equal before the law are being proved."

In the Spanish legal system, an investigating magistrate can declare someone to be a suspect when they are under investigation. This does not necessarily mean they will be charged, but points to evidence that raises a suspicion.