Former Malaysian prime minister Najib Razak has pleaded not guilty after being charged with three counts of criminal breach of trust and one count of using his position for gratification, as part of a probe into missing money from state fund 1MDB.

Key points: Charges relate to missing $13.5 million

Charges relate to missing $13.5 million Each charge carries maximum penalty of 20 years' jail

Each charge carries maximum penalty of 20 years' jail Najib was arrested on Tuesday

The charges are in connection with how 42 million ringgit ($AU13.5 million) went from SRC International, a former 1MDB unit, into Mr Najib's personal bank account.

Mr Najib said he was innocent and had a chance to clear his name.

"I am confident of my innocence, I believe in my innocence and this is the best chance to clear my name," he told reporters outside the courtroom after being released on bail.

"If this is the price I have to pay for 42 years I served the people and the country … I am willing," he added.

The trial date has been set for February 18 next year.

Each of the charges has a maximum penalty of 20 years in prison.

Whipping is also a penalty but Mr Najib would be exempt because he is over 60 years old.

Najib Razak arrives for his court appearance in Kuala Lumpur. ( Reuters: Lai Seng Sin )

Mr Najib, 64, was arrested at his home on Tuesday afternoon, less than two months after police and corruption busters revived probes into the fund's missing billions and a suspicious transaction involving SRC International, a former 1MDB unit.

Mr Najib, who spent the night in the lockup, arrived at 8:20am (local time) at the court complex in Malaysia's capital, wearing a dark blue suit and a red tie.

Crowds of media and curious onlookers jostled to catch a glance of the former prime minister as he was led to a sessions court to hear the charges.

Mr Najib denies any wrongdoing and has accused the new Government of seeking "political vengeance".

In a recorded video posted on social media hours after his arrest, Mr Najib apologised to Malaysians but remained defiant.

"As a normal human being, I am not perfect but believe me, that the accusations against me and my family are not all true," he said.

New Prime Minister Mahathir Mohamad reopened investigations into 1MDB that were stifled under Mr Najib's rule.

Sorry, this video has expired Malaysian police raid the home of former prime minister Najib Razak (Photo: AP)

Mr Najib set up 1MDB when he took power in 2009 but the fund amassed billions in debts and is being investigated in the US and several other countries.

Mr Najib and his wife were questioned last month over the SRC case by the anti-corruption agency and have both been barred from leaving the country.

Police have also seized jewellery and valuables valued at more than 1.1 billion ringgit ($367 million) from properties linked to Mr Najib.

Reuters/AP