The charges, contained in a report by the anti-fraud unit of the Office of the High Representative (OHR) in the country, were revealed in an article published by the New York Times on Tuesday.

The BBC's Andrew Walker: Reports of corruption may make donors less willing to contribute

The newspaper said politicians from all three main ethnic communities - Muslims, Serbs and Croats - were involved but embassies and relief agencies were reluctant to publicise the thefts for fear of scaring away potential donors.

Mr Izetbegovic said the report was intended to damage the country: "I declare that these are lies and assert that they were conjured up to smear the Bosnian government and avert friendly countries from financial and military engagement in Bosnia," he said.

The report says massive amounts of reconstruction aid has been syphoned off

His comments were supported by Bosnian co-premier Haris Silajdzic, who said the report had "inflicted great damage on Bosnia-Herzegovina at a time when we are trying to win the trust of international financial organisations and foreign investors."

Mr Silajdzic said the OHR's report, of true, should be published in full immediately.

Wolfgang Petritsch: Reputations and Bosnia's future is at stake

Correspondents say the report is likely to sour relations with the new High Representative in the country, Wolfgang Petritsch, who heads of the office responsible for carrying out the civilian aspects of the 1995 Dayton peace agreement.

It could also make aid donors less willing to contribute much needed cash to the region - including to Kosovo - if they fear money intended for post-war reconstruction will only end up in the pockets of local officials.

Need for aid

In his first official meeting with Mr Izetbegovic, Mr Petritsch warned the Bosnian leader that the problem must be taken seriously because Bosnia could not survive without foreign aid.

Sarajevo still bears the scars of the 1992-95 war

Mr Izetbegovic has repeatedly rejected suggestions that the country is plagued by widespread corruption.

According to the Times' report, the OHR's anti-fraud unit is examining 220 cases of embezzled cash intended to help rebuild roads, buildings and schools and to provide municipal services across the country.

Responding to the report, US State Department Spokesman James Rubin denied any knowledge of American money being misused, but admitted that Washington was "taking an active role" to reduce corruption and criminality in Bosnia.

Bad signal for Kosovo

State Department officials have meanwhile expressed concern that the New York Times report might send a bad signal to congress which is due to debate reconstruction aid to Kosovo when it returns from its current summer recess.

The report is said to name officials linked to governing parties in Bosnia. Some have been removed from office, although most remain.