* Gotti Tedeschi accused of negligence, mismanagement
* Ousted banker says paying price for transparency
* Vatican trying to restore image after money laundering probe
VATICAN CITY, May 25 In the type of drama that rarely filters out of the Vatican, the president of its bank has been ousted by a board of external financial experts who voted no confidence in his leadership.
Ettore Gotti Tedeschi, who was shown the door on Thursday night as president of the Vatican bank formally known as the Institute for Works of Religion (IOR), claimed he is a victim of his efforts to make the bank more open.
Gotti Tedeschi told Reuters: "I have paid for my transparency".
The Vatican denied this, saying he had been ineffective and divisive.
Gotti Tedeschi, a conservative Catholic who once worked for Spain's Banco Santander, was IOR president since 2009 and is a high-profile figure in Italy.
He wrote editorials about financial ethics for the Vatican newspaper and other publications and often appeared at conferences about business ethics.
A statement said the board moved against him because he "did not carry out functions of primary importance for his office".
The bank will seek a new president who can "re-establish full and effective relations between the Institute and the financial community, based on mutual respect of internationally accepted banking standards", it said.
The board which ousted Gotti Tedeschi includes Carl Anderson, the American head of the international charity group Knights of Columbus, Ronaldo Hermann Schmitz, formerly a top executive at Deutsche Bank, Manuel Soto Serrano of Banco Santander and Antonio Maria Marocco, a prominent Italian notary.
A source familiar with events surrounding the ouster said the board repeatedly had pleaded with Gotti
Tedeschi to become more knowledgeable about the daily running of the bank, to get to know its managers better and spend less time in the media spotlight.
The person said the move was "definitely not" an attempt to put the brakes on efforts towards greater transparency, adding that foreign ambassadors accredited to the Vatican have been visiting the bank as part of its drive to show that it is as open as can be.
He rejected any suggestion by Gotti Tedeschi that the other four board members were trying obstruct transparency.
The Vatican bank, founded in 1942 by Pope Pius XII, has been in the spotlight since September 2010 when Italian investigators froze 23 million euros ($33 million) of its funds in Italian banks after opening an investigation into possible money-laundering.
The bank said it did nothing wrong and was just transferring the funds between its own accounts. The money was released in June 2011, but the investigation is continuing.
The allegations were seen as a setback to the Vatican's bid to be included in the so-called "white list" of states which comply with international standards against tax fraud and money-laundering. A decision on its inclusion is expected this summer.
The Vatican recently adopted new financial transparency laws and set up internal regulations to make sure its bank and all other departments adhere to international regulations and standards, and cooperate with foreign authorities.
The 108-acre sovereign state surrounded by Rome says it now complies with the rules of the Paris-based Financial Action Task Force (FATF).
It also established an internal Financial Information Authority (FIA) along the lines of other countries and has committed to comply with international anti-money laundering standards and liaise with the group and law enforcement agencies.
In January, Italian newspapers published leaked letters that pointed to an internal debate as how the law should be structured to best comply with international standards.
The IOR was entangled in the collapse 30 years ago of Banco Ambrosiano, with its lurid allegations about money-laundering, freemasons, mafiosi and the mysterious death of Ambrosiano chairman Roberto Calvi - "God's banker".
The IOR then held a small stake in the Ambrosiano, at the time Italy's largest private bank and investigators alleged that it was partly responsible for the Ambrosiano's fraudulent bankruptcy.
Several investigations have failed to determine whether Calvi, who was found hanging under Blackfriars Bridge near London's financial district, killed himself or was murdered.
The IOR denied any role in the Ambrosiano collapse but paid $250 million to creditors in what it called a "goodwill gesture". (Reporting By Philip Pullella; Editing by Michael Roddy)