The Paris prosecutor's office has opened an investigation into alleged "sexual aggression" by Luigi Ventura, the Vatican's envoy to France, according to a judicial official.
The official said the investigation will be conducted by Paris police following an alleged incident in the French capital's town hall.
According to Le Monde, Ventura, who has held the post with the Holy See's global diplomatic corps since 2009, is suspected of sexually molesting a young male employee during a ceremony of wishes on January 17.
Ventura, who was born in northern Italy near the city of Brescia, turned 74 in December.
He was ordained a priest in June 1969 and elevated to bishop in March 1995. He was appointed nuncio to France in September 2009 by Benedict XVI, a position regarded as the crowning achievement of a Vatican diplomatic career.
After serving as nuncio to Ivory Coast, Burkina Faso and Niger, he then held the position in Chile and Canada before landing the French post.
When he turns 75 in December, he will be required, as all bishops are at that age under Vatican rules, to submit his resignation to Pope Francis, who can either accept it or let him stay on.
Ventura is the third Vatican diplomat accused of sexual wrongdoing.
In June last year, the Vatican tribunal convicted Monsignor Carlo Capella of possession and distribution of child pornography and sentenced him to five years in prison.
In 2013, the Vatican charged its then-ambassador to the Dominican Republic, Monsignor Jozef Wesolowski, with sexually abusing young boys.
Wesolowski was defrocked by the Vatican's church court, but died before the Vatican's criminal trial got underway.