Malaysia's anti-graft agency stated that nearly $700 million deposited into the Prime Minister's personal bank accounts were from "donations" and not related to a brewing scandal.
Prime Minister Najib Razak has faced mounting pressure in the past year over a series of revelations alleging that hundreds of millions of dollars were siphoned off from a state-owned company linked to him.
The Wall Street Journal last month reported that Malaysian government investigators had found nearly $700 million was routed to his personal bank accounts.
In a statement on Monday, the Malaysian Anti-Corruption Commission acknowledged the funds were transferred to Najib's accounts, but said they were not linked to the company, 1Malaysia Development Berhad (1MDB).
"Investigations revealed that the 2.6 billion ringgit ($670 million) alleged to have gone into (Najib's) account was from donors' contributions, and not funds from 1MDB," it said.It did not specify the identities of the donors, but said investigations were continuing.
Both Najib and 1MDB, which he launched in 2009, strongly deny wrongdoing, with Najib accusing political opponents of a conspiracy to topple him.
The firm released a statement on Tuesday restating its innocence.
"1MDB welcomes the clear statement from the Malaysian Anti-Corruption Commission, which confirms that no funds from 1MDB were transferred to the Prime Minister," it said. "We have always maintained that the company has never provided any funds to the Prime Minister."
However the anti-graft agency's announcement fuelled criticism from the opposition that the government was engaging in a cover-up.
"I am sure this announcement by the anti-corruption agency sets the stage to clear Najib of any wrongdoing," said Rafizi Ramli, a lawmaker with the opposition People's Justice Party. "But it will not be able to quell public anger and mistrust over the matter," he added.
Rafizi said that the public wanted to know the source of the donation money and what the donations were for.
Najib last week sacked his deputy premier, Muhyiddin Yassin, and other cabinet figures who had called for answers over 1MDB, as well as his attorney general, who was probing the allegations.
The ruling Barisan Nasional (National Front) coalition, in power for 58 years, has steadily lost ground in recent elections among voters seeking greater democratic space and an end to corruption.