The charges arise from the transfer of a food production company from state to private hands in 1993. Mr Prodi, who was head of Italy's giant state holding company IRI at the time, is accused of fixing the sale of a large package of shares in the company by offering it to a politically well-connected private concern at a cut-price rate.
The news came as a nasty surprise to the government since Mr Prodi is generally considered one of the few honest figures from the Italian establishment of the 1980s and early 1990s.
Its timing was also unfortunate, coinciding with the appearance of rifts within the governing coalition as the country struggles to qualify for European monetary union with a big package of austerity measures.
The case will now be considered by a preliminary magistrate who must decide whether to order Mr Prodi and the rest of his board at IRI to stand trial. A date for the preliminary hearing has yet to be set.
Judicial inquiries have a habit of turning into political dynamite in Italy. A probe into bribery and tax evasion prompted the resignation of the media tycoon Silvio Berlusconi as prime minister two years ago, while a smear campaign between rival factions in the judiciary provoked the former anti-corruption magistrate Antonio Di Pietro to walk out of the government two weeks ago.
First indications suggested, however, that Mr Prodi was not running into immediate trouble. His coalition partners immediately expressed their solidarity, while the opposition showed little interest in making much political capital out of the incident. "Requests to send people for trial seems to be turning into a national sport," said Gerardo Bianco, leader of a left-wing Catholic party close to Mr Prodi.
Speaking to business leaders in the northern city of Udine, Mr Prodi said that his own honesty was not in question. "I will demonstrate ... the rectitude of our actions," he said. "And as I have always had faith in the judiciary, I don't have any problem."
The affair could yet prove to be a festering sore in the side of his government, however. The investigation into IRI, although prompted by the complaint of a small shareholder in the food company Cirio-Bertolli- De Rica, was actively encouraged by Mr Prodi's political rivals after he launched his candidacy for the premiership in February 1995.
The company that bought Cirio-Bertolli-De Rica, an obscure southern firm called Fisvi, subsequently sold part of it on to the Anglo-Dutch giant Unilever - a company to which Mr Prodi was acting at the time as an adviser.
It may in the end be easier to criticise Mr Prodi as a weak, rather than criminally culpable, manager. He himself looks back on his time at IRI with mixed feelings, describing the experience as his personal Vietnam.Reuse content