COLOMBO - A Sri Lankan parliamentary panel will investigate an allegation of corruption against a Chinese company contracted to work on the construction of South Asia's tallest tower. 

President Maithripala Sirisena made the allegation at the inauguration on Monday of the 356-meter Lotus Tower, which overlooks Beira Lake in Colombo, sparking a political row in the country, which has relied heavily on China for project finance.

Sirisena alleged that Aerospace Long-March International Trade Co (ALIT) had vanished, misappropriating some 2 billion rupees ($11 million) deposited with it by Sri Lanka's state-run Telecommunication Regulatory Commission (TRC). 

Sirisena's predecessor Mahinda Rajapaksa, who was in power when the alleged incident took place in 2012, said in a statement that China National Electronics Corporation and ALIT had been nominated by the Chinese government.

He said the active party in the contract had always been the China National Electronics Corporation and not ALIT.

"To say that a major Chinese government-owned conglomerate had disappeared with 2 billion rupees belonging to the Sri Lankan government is a horrendous insult to China," Rajapaksa said.

"If this statement was made due to wrong information being conveyed, I expect the relevant individuals to move quickly to issue a correction," he said.

Anusha Palpita, the director-general of TRC when the agreement was signed in 2012, issued a statement to local media on Wednesday denying the allegation that any money had gone missing and said Sirisena had been misled.

The Chinese Embassy in Colombo and ALIT did not respond to requests for comment by telephone or email.

Sri Lanka's Committee On Public Enterprises (COPE) which looks into compliance of financial discipline in public corporations said on Wednesday it will probe the allegation.

"The COPE will conduct a full-scale probe into the tower construction. We will call TRC officials and other relevant parties before the COPE soon," Sunil Handunnetti, COPE chairman and an opposition legislator, told the COPE meeting.

After coming to power in 2015, Sirisena suspended most Chinese-backed infrastructure projects started under Rajapaksa, citing allegations of corruption and the flouting of rules.

Sirisena's Lotus Tower allegation comes ahead of a presidential election later this year, which Rajapaksa's brother Gotabaya Rajapaksa is expected to contest.*:nL3N2622AS

Political sources close to Sirisena and Rajapaksa have said talks between the president's centre-left Sri Lanka Freedom Party (SLFP) and Rajapaksa's Sri Lanka Podujana Peramuna (SLPP) for a coalition deal have broken down.

(Reporting by Shihar Aneez; Editing by Alexander Smith and Hugh Lawson) ((; +94-11-232-5540; Reuters Messaging: twitter:@shiharaneez))