Abu Dhabi state-owned fund Mubadala, which last year merged with IPIC, has insisted that a legally binding agreement with 1MDB is still in place.

This followed an announcement by attorney-general Tommy Thomas that Malaysia had filed a challenge against 1MDB's settlement with IPIC on the grounds of fraud.

"There remains in place a legally-binding settlement agreement that was agreed to by the arbitrating parties," Mubadala told Reuters in an e-mailed statement.

The Abu Dhabi fund said it was as yet not aware of the Malaysian challenge.

Under the settlement, 1MDB paid IPIC US$1.2 billion and undertook to repay two bonds totalling US$3.5 billion which IPIC had guaranteed, thereby freeing IPIC of its obligations.

"The 1MDB group issued $3.5 billion of notes to various noteholders for which IPIC has given guarantees to those noteholders.

"As the issuer, the 1MDB group has the primary liability to pay the noteholders regular interest coupons and to repay the principal amount at maturity," Mubadala was quoted by Reuters as saying.

Following the settlement, it said 1MDB did not currently owe any debt to IPIC or Mubadala.

Yesterday, Thomas said the Malaysian government's challenge was filed in the London High Court.

"The basis of Malaysia’s legal challenge in the High Court of London is that the award was procured by fraud or in a manner contrary to public policy.

"The court application relates to the knowledge of IPIC and Aabar of the serious allegations made by the US Department of Justice (DOJ) against the former prime minister and finance minister Najib Abdul Razak, who was also the moving spirit and ultimate decision-maker in 1MDB.

"Najib is identified as 'MO1' in the DOJ pleadings. Any reasonable reader reading these court documents would immediately become aware of his central role in defrauding 1MDB to the benefit of himself, his stepson and Jho Low," Thomas had said.