* Probe revolves around $11 bln contracts in Algeria
* Eni says company and CEO totally extraneous
* Former Saipem CEO resigned over Algeria probe
* Shares down 4.6 percent
(Adds details on probe, background)
By Manuela D'Alessandro
MILAN, Feb 7 (Reuters) - Milan prosecutors have put Paolo Scaroni, head of Italy's Eni Spa <ENI.MI>, under investigation in a probe into alleged bribes paid to win contracts in Algeria for Saipem SpA <SPMI.MI>, in which Eni is the largest investor, the company said.
Two judicial sources with knowledge of the situation had earlier on Thursday told Reuters that Scaroni was being investigated in a probe centering on contracts worth $11 billion won by Saipem.
Saipem, Europe's biggest oil service group, is 43 percent owned by Eni, the oil and gas major which is in turn controlled by the Italian state. Eni is Italy's biggest listed group.
"Eni acknowledges that the prosecutor has decided to extend the investigation to include Eni and its chief executive officer," Eni said in a statement.
"Eni and its CEO declare themselves totally unrelated to the object of investigation," it said.
The company also said Scaroni's house and Eni offices had been searched, confirming what the sources had said.
The investigation is into allegations that Saipem paid bribes to secure a series of contracts in Algeria centering around the Medgaz and MLE projects with state-owned energy group Sonatrach.
The prosecutors allege that to secure the $11 billion worth of contracts the two companies paid bribes of 197 million euros to a Hong Kong company called Pearl Partners Limited.
The bribes regarded eight contracts awarded Saipem in the period 2007-2009.
Scaroni, who has been at the helm of Eni since June 2005, is one of Italy's most prominent business executives. Prior to Eni, he was in charge of the country's biggest utility Enel <ENEI.MI> and is currently also non-executive deputy chairman of the London Stock Exchange <LSE.L>.
Former long-standing Saipem CEO Pietro Franco Tali resigned in December after it emerged that Milan prosecutors had opened an investigation into the group's business in Algeria.
The probe also cost the job of Eni Chief Financial Officer Alessandro Bernini, seen by many analysts as Scaroni's right hand man.
The latest developments come as Italian prosecutors pursue a corruption investigation into an opaque series of loss-making derivatives trades at Italy's No. 3 bank Monte dei Paschi di Siena <BMPS.MI>.
Last week, Saipem shocked investors when its newly-installed management slashed 2012 profit guidance and gave a grim outlook for this year, triggering a 34 percent fall in its shares.
Italy's financial regulator subsequently asked its British counterpart to probe a sale of Saipem stock a day before the company had issued the warning, a source close to the Italian watchdog said.
Shares in Eni, which has extensive gas interests in Algeria, Italy's biggest gas supplier alongside Russia, closed down 4.6 percent.
(Additional reporting by Stephen Jewkes; Editing by Lisa Jucca, David Holmes and Bernard Orr)