The South African government is facing demands to arrest a man dubbed "Gaddafi's banker" amid claims the deposed Libyan leader and his family stashed more than $1bn (£658m) in the country.

Bashir Saleh, on Interpol's wanted list for his former role as a aide to Muammar Gaddafi, is travelling freely in South Africa, according to a report in the local press. He even allegedly attended the governing African National Congress's centenary celebrations and a recent summit of the Brics emerging economies.

The row came as South African officials confirmed they have been approached by Libyan investigators seeking to recover Gaddafi's cash, gold and diamonds believed to be held by four banks and two security companies in the country.

The South African Sunday Times said the investigators are convinced part of the $1bn "loot" in South Africa is linked to Saleh, who also goes by the name Bashir al-Shrkawi.

"He was reportedly seen hobnobbing with ANC notables at the party's centenary dinner in Mangaung in January 2012 and at the Brics summit in Durban in March this year," the paper added.

It quoted Libyan sources as saying Saleh was seen three weeks ago at Johannesburg's five-star Michelangelo hotel – which has previously denied alleged links to Gaddafi – and is believed to be travelling between South Africa, Swaziland and Niger.

The South African opposition Democratic Alliance demanded his immediate arrest. Dianne Kohler Barnard, shadow police minister, said: "What is he doing strolling in and out of our country when he's on the most-wanted list? If we had any crime intelligence at all, they would know who this was and arrest him on the spot.

"There's a possibility he's being protected by members of the ANC, maybe on the instructions of 'number one' [president Jacob Zuma]. How else could someone on the Interpol list get such protection?"

She added: "Urgent action must now be taken to rectify this. Bashir Saleh must be immediately arrested and a full investigation conducted so that the world knows that South Africa will not allow itself to become a safe haven for international criminals."

ANC spokespeople did not respond to requests for comment.

Foreign assets belonging to Gaddafi – who was ousted and killed during a revolt in 2011 – or his family are regarded by many Libyan citizens as state-owned property that should be repatriated. It is thought the South African haul could be the biggest to date, though still only a fraction of the estimated total of $80bn.

Some of the information used to trace the funds is understood to have come from Abdullah al-Senussi, Libya's former intelligence chief, who was arrested last year for crimes against humanity, the Sunday Times reported. The paper printed extracts of letters from Libya's justice and finance ministers to their South African counterparts asking for help finding assets linked to Gaddafi, which might "have been illegally possessed, obtained, looted, deposited or hidden in South Africa".

It also claimed the investigators had met president Jacob Zuma and finance minister Pravin Gordhan to discuss locating and returning the money.

Jabulani Sikhakhane, a spokesman for the South African treasury, confirmed on Sunday: "The treasury was approached by a group claiming to represent the Libyan government. They say some assets were moved to South Africa by the former regime."

It will take considerable time to identify the assets and institutions, he added.

Libyan embassy official Salah Marghani said officials had "been appointed to investigate and secure assets in Africa on behalf of the people of Libya".

Gaddafi's relationship with South Africa was complicated. Nelson Mandela is often said to have been grateful for his support in the struggle against racial apartheid and was once quoted as saying: "Those who feel irritated by our friendship with president Gaddafi can go jump in the pool."

But in 2011 Mandela's successor as president, Thabo Mbeki, claimed Gaddafi's backing for the ANC was a myth. "The incontrovertible fact is that during this whole period, Libya did not give the ANC even one cent, did not train even one of our military combatants and did not supply us with even one bullet," he said.

"This is because Gaddafi's Libya made the determination that the ANC was little more than an instrument of Zionist Israel because we had among our leaders such outstanding patriots as the late Joe Slovo."

Others point to evidence that South Africa's relations with Gaddafi cooled when Mbeki took over in 1999. Tom Wheeler, a former ambassador and now research associate at the South African Institute of International Affairs, said: "I find this report a bit perplexing because I don't think Gaddafi was particularly popular here during the time of Thabo Mbeki.

"I was present when Mbeki spoke to the department of foreign affairs and he showed complete disdain for Gaddafi. He said this idiot Gaddafi wanted him to break off relations with the US and waved a letter around."

Under Zuma, South Africa backed a UN resolution authorising air strikes on Gaddafi's forces in Benghazi during the 2011 uprising but was otherwise critical of the west's push for regime change.