MADRID—Banco de Madrid SA, the Spanish unit of an Andorran lender accused of laundering money for organized-crime groups, has filed for protection from its creditors, Spain’s central bank said Monday.

Banco de Madrid has been hit by substantial client withdrawals, the central bank said, which has impacted the ability of the lender to “meet its obligations in a timely matter.”

The move comes less than a week after the Bank of Spain hastily took control of the tiny Madrid-based private banking unit, after The Treasury Department’s Financial Crimes Enforcement Network named Banco de Madrid’s parent company—Banca Privada d’Andorra, or BPA—a “primary money-laundering concern.”

Filing for creditor protection will allow depositors and other creditors “equal treatment.” The filing must still be approved by a judge, the Bank of Spain said in a statement published Monday morning.

Separately, Spain’s stock market supervisor, the CNMV, said it had temporarily suspended reimbursements from all investment funds managed by Banco de Madrid.