Gordon Brown has called for a "special investigation" into Goldman Sachs after reports that the bank is to pay £3.5bn in bonuses.
Speaking on the BBC's Andrew Marr Show the Prime Minister described the situation as one of "moral bankruptcy".
His criticism follows allegations by the Securities and Exchange Commission in US that Goldman defrauded investors during the sub-prime housing crisis.
Goldman strongly rejected the claims as wrong "in fact and law".
Mr Brown said that the UK Financial Services Authority should launch an immediate inquiry in co-operation with the US regulator, the Securities and Exchange Commission (SEC).
The Sunday Times reported that the bank was set to pay out £3.5bn in bonuses to its staff worldwide - including almost £600m to 5,500 London-based employees - for just three months work.
On Friday, the SEC issued civil charges against Goldman that it failed to disclose conflicts of interest during the marketing of sub-prime mortgages in which investors lost $1bn.
Mr Brown said that the issue underlined the need for further reform of the international banking system. "I am shocked at this moral bankruptcy. This is probably one of the worst cases that we have seen," he said.
"Hundreds of millions of pounds have been traded here and it looks as if people were misled about what happened. I want the Financial Services Authority to investigate it immediately."
The other two main parties have plans to reform the banking system. Among Conservatives plans is a strong push for an international agreement to stop banks engaging in large-scale trading using their own money
And the Liberal Democrats, which would have gone further than Labour's bail-out and nationalised banks, say they will separate banks' retail and investment arms.
In Germany, government spokesman Ulrich Wilhelm told a German newspaper that its regulator, BaFin, will also seek information from the SEC. "After a careful evaluation of the documents we will decide about legal steps," Mr Wilhelm said.
Germany-based IKB, which invested in the sub-prime securities, required a bailout of at least 10bn euros after its near collapse in 2007.
On Friday, the SEC issued charges against Goldman and one of its London-based vice presidents, Fabrice Tourre.
The SEC says Goldman failed to disclose "vital information" that one of its clients, Paulson & Co, helped choose which securities were packaged into the mortgage portfolio.
These securities were sold to investors in 2007.
But Goldman did not disclose that Paulson, one of the world's largest hedge funds, had bet that the value of the securities would fall.
The SEC said: "Unbeknownst to investors, Paulson... which was posed to benefit if the [securities] defaulted, played a significant role in selecting which [securities] should make up the portfolio."
"In sum, Goldman Sachs arranged a transaction at Paulson's request in which Paulson heavily influenced the selection of the portfolio to suit its economic interests," said the Commission.
The SEC alleges that investors in the mortgage securities, packaged into a vehicle called Abacus, lost more than $1bn (£650m) in the US housing collapse.
Mr Tourre was principally behind the creation of Abacus, which agreed its deal with Paulson in April 2007, the SEC said.
The Commission alleges that Mr Tourre knew the market in mortgage-backed securities was about to be hit well before this date.
The SEC's court document quotes an email from Mr Tourre to a friend in January 2007. "More and more leverage in the system. Only potential survivor, the fabulous Fab[rice Tourre]... standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!"
A Goldman spokeswoman said the company had no comment on Mr Brown's attack. On Friday, the bank, said: "The SEC's charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation."
John Paulson made billions of dollars in the financial markets
Calls to Mr Tourre's office were referred to the Goldman press office. Paulson has not been charged.
In a statement, Paulson & Co. said: "As the SEC said at its press conference, Paulson is not the subject of this complaint, made no misrepresentations and is not the subject of any charges."