UPDATE 1-Monte Paschi's former finance chief returns to jail
(Recasts with new arrest order)
FLORENCE, Italy, March 17 (Reuters) - An Italian judge on Sunday ordered the former head of Monte dei Paschi's finance department to return to jail a day after releasing him for a procedural error as part of an inquiry into alleged fraud and bribery at Italy's third-largest bank.
Judicial sources with direct knowledge of the case said Baldassarri, who had been released on Saturday night, would be detained in Milan.
Gianluca Baldassarri was the first person to be arrested in a widening scandal that has rocked the word's oldest bank.
On Saturday, a judge in Siena accepted a request from his lawyers to have the former executive released as a result of a procedural error related to his arrest on Feb. 14.
Prosecutors had appealed against the decision saying Baldassarri may interfere with the case and leave the country.
State prosecutors are investigating Monte dei Paschi's costly acquisition of smaller rival Antonveneta from Santander in 2007 as well as a series of loss-making derivative and structured finance trades dating back to 2006-09.
They accuse Baldassarri, who left Monte dei Paschi in 2012, of helping to mislead regulators over the true nature of a secret derivatives contract that was found in a safe by the bank's new management in October 2012.
That accusation has been extended to the bank's former Chairman Giuseppe Mussari and its former Director General Antonio Vigni, who were both under investigation for other alleged offences in the case.
Baldassarri's lawyer, Filippo Dinacci, said his client, who was questioned by prosecutors on Saturday, had no intention of leaving the country and was willing to cooperate with prosecutors.
Italian financial police on March 5 searched premises connected with Monte dei Paschi di Siena as part of a new investigation into suspected insider trading.
(Reporting by Silvia Ognibene; Writing by Antonella Ciancio; Editing by Daniel Magnowski, Bernard Orr)