Donald Trump cannot move ahead with his plan to dismantle his charitable foundation because state prosecutors are investigating whether the president-elect personally benefited from its spending, the New York attorney general’s office said on Tuesday.

“The Trump Foundation is still under investigation by this office and cannot legally dissolve until that investigation is complete,” said Amy Spitalnick, spokeswoman for the state attorney general, Eric Schneiderman.

The statement came after Trump announced that he wanted to dissolve the Donald J Trump Foundation, part of what his presidential transition team says is an effort to erase any potential conflicts of interest before he takes office on 20 January.

But the foundation’s inner workings have been the subject of Schneiderman’s investigation for months and could remain a thorny issue for Trump’s incoming administration. Democrats nationally have said they are ready to raise any legal or ethical issues from Trump’s global business empire during his presidency.

The foundation had long been a political football during the campaign. It was reported then that Trump used $258,000 of the foundation’s money to pay for personal legal settlements. The president also spent charitable funds on multiple portraits of himself as well as an autographed football helmet.

Trump’s charity has admitted that it violated IRS regulations barring it from using its money or assets to benefit Trump, his family, his companies or substantial contributors to the foundation.

The admissions by the Donald J Trump Foundation were in a 2015 tax filing made public after the presidential election in which it was revealed that Trump has used the charity to settle lawsuits, make a $25,000 political contribution and purchase items, such as a painting of himself, that was displayed at one of his properties.

The 2015 tax filing was posted on the non-profit monitoring website GuideStar on 18 November by someone using an email address from the foundation’s law firm, Morgan, Lewis & Bockius, said a GuideStar spokeswoman, Jackie Enterline Fekeci.

In the tax filing, the foundation acknowledged that it used money or assets in violation of the regulations not only during 2015, but in prior years. But the tax filing does not provide details on the violations.

Despite bearing Trump’s name, the president-elect had not donated to it since 2008. Instead, the charity relied on donations from other Trump associates, most notably professional wrestling magnates Vince and Linda McMahon, who gave $5m to the Trump Foundation. Linda McMahon has since been announced as Trump’s nominee to lead the Small Business Administration.

Schneiderman, a Democrat, launched his investigation into the charity after reporting by the Washington Post drew attention to some of the foundation’s purchases.

Trump asserted on Twitter late on Monday that his foundation was run efficiently.

“The DJT Foundation, unlike most foundations, never paid fees, rent, salaries or any expenses,” the president-elect tweeted. “100% of the money goes to wonderful charities.”

When asked for comment, a transition spokesperson simply referred back to a passage from the president-elect’s statement on Saturday that read “president-elect Trump has directed his counsel to take the necessary steps to effectuate the dissolution”.