MILAN (Reuters) - Banco BPM said on Wednesday Italian tax police had seized 84.6 million euros ($96 million) in funds from the country's third-largest bank as part of a probe into alleged fraudulent diamond sales to customers.

Italian police carried out a seizing order for 700 million euros on Tuesday as Milan prosecutors probed allegations of fraud over sales of diamonds as an investment at inflated prices, sources have told Reuters.

The probe targets Banco BPM, three other Italian banks and two diamonds brokers. Under Italian law, companies can be held responsible for their employees' illegal actions.

Banco BPM said the bank and the director general had been placed under investigation.

The three other banks being investigated -- Intesa Sanpaolo, Monte dei Paschi and UniCredit -- have declined to comment.

Banco BPM said the probe focused on the fact that, between 2003 and 2016, it had passed to diamonds broker IDB the names of customers interested in purchasing stones as an investment.

Banco BPM, created in 2017 from the merger of Banco Popolare and Popolare di Milano, said it had been fully cooperating with authorities and put aside provisions last year to cover for risks linked to diamonds sales following IDB's bankruptcy.

The bank has put aside 150 million euros to reimburse clients, analyst say.

($1 = 0.8825 euros)

(Reporting by Valentina Za; Editing by Silvia Aloisi and Edmund Blair)

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