Monaco's royal palace said Friday it has filed suit against an American who claims to have run a private spy agency for Prince Albert II to keep tabs on powerful local personalities and media.

Robert Eringer, a US private eye who also claims to be a former FBI agent, alleged in an interview this week that he ran a service called the "Monaco Intelligence Service", reporting directly to the prince, from 2002 to 2007.

He claims he met Albert via billionaire mutual friends in 1991 and that the prince informally recruited him to brief him on key businessmen and potential investors in Monaco in an effort to "clean up" corruption in the principality.

People he investigated included a top businessman, a senior civil servant and a property developer, Eringer told French news magazine Paris-Match.

The 55-year-old also said he "infiltrated" local media on behalf of the prince, who - loved to know who was informing the papers - until Albert broke off their relations in 2007, two years after acceding to the throne.

Eringer has filed suit in California accusing the 51-year-old prince -- who as head of state has diplomatic immunity -- of wrongful contract termination.

The Monaco royal palace responded Friday with a statement denying the assertions in bulk, and saying that - judicial proceedings are under way in the United States against Mr Eringer. -

- The palace wishes to express its indignation regarding the numerous untrue and defamatory claims made against H.R.M. Prince Albert II of Monaco that sully his image and the renown of the Monaco principality - it said.

The palace did not deny the prince was acquainted with Eringer, with whom he has been photographed arm-in-arm in the past.

Prince Albert's lawyer Thierry Lacoste confirmed to AFP that he was in the process of launching a lawsuit against Eringer in Los Angeles, on several counts including defamation.

- Mr Eringer's accusations are baseless. There is not a single element of proof. This is just a load of hot air - said Lacoste.