ROME (Reuters) - One of Italy’s most prominent Catholic cardinals and a former minister have been put under investigation as a corruption scandal that has tainted the government spread to touch the Vatican.

Magistrates told Cardinal Crescenzio Sepe and Pietro Lunardi, former infrastructure and transport minister in the center-right government, they were being investigated for aggravated corruption, judicial sources said.

The magistrates in the central city of Perugia are investigating a web of corruption and favors involving public works contracts, mostly in construction for major events, such as last year’s G8 summit and the millennium celebrations.

Sepe, 67, is being investigated for alleged corruption when he was a Vatican official running the Congregation for the Evangelisation of Peoples, a cash-and-real-estate-rich department of the Vatican that finances the work of missions abroad.

Sepe, who ran the department until he was moved to Naples in 2006, is suspected of aggravated corruption with Lunardi in connection with a real estate deal.

According to Italian newspapers La Stampa, Corriere della Sera and La Repubblica, Lunardi bought a building in Rome from Sepe’s department in 2004 at a price well below market value.

The next year, when Lunardi was minister, he approved a decree allocating funds for the restoration of historic church buildings, including the 16th century headquarters of the mission department facing Rome’s Spanish Steps.

CARDINAL WILL COOPERATE

In a statement, the Vatican said it hoped the situation “could be cleared up fully and rapidly in order to eliminate any shadows, be they on the person (Sepe) or Church institutions.”

It said Sepe would cooperate with magistrates but proper procedures had to be used as the Vatican is a sovereign state.

The Vatican appears to be taking a tack of transparency to avoid a repetition of a showdown with Italy in 1982, when it refused to cooperate with magistrates investigating the Vatican Bank’s role in the fraudulent bankruptcy of the Banco Ambrosiano.

Sepe, mobbed by reporters as he was leaving a church in Naples on Sunday, said: “The truth will emerge ... I am serene.”

In an interview with Corriere della Sera, Lunardi said he would see magistrates in Perugia soon “to clear everything up.”

The Perugia investigation has claimed the head of Claudio Scajola, a close ally of Prime Minister Silvio Berlusconi, who resigned as industry minister in May.

Scajola resigned after it was found 900,000 euros’ worth of cashier checks used to buy his luxury Rome apartment overlooking the Colosseum came from a constructor arrested in the political corruption probe. He denies any wrongdoing.

The corruption scandal exploded in February when police arrested four people including Angelo Balducci, the former head of the government department that oversees public works and a construction consultant to Sepe’s missions department.

Balducci and the others were accused of orchestrating a web of corruption and kickbacks among constructors, architects and civil servants who managed tens of millions of euros of public works contracts.

Balducci is in jail in Rome. Magistrates have turned down requests for him to be placed under house arrest.

A month after he was arrested, a new scandal involving Balducci and the Vatican blew up when wiretaps implicated him and a member of a Vatican choir in a male prostitution ring.

After that scandal, Balducci was dismissed from an elite volunteer corps called “Gentlemen of His Holiness,” ushers who serve in the Vatican’s Apostolic Palace on major occasions such as when the pope receives heads of state.