The disclosure that the priest's alleged victim received a financial settlement from the church and refused to assist police has led to the accusation that the church paid hush money. Father Mato Krizanac, 60, of the Croatian Catholic Centre at St Nicholas' church in Clifton Hill, was the subject of a 12-month internal investigation by the church's independent commissioner, Peter O'Callaghan, QC, of the Melbourne Response, and the Archdiocese of Adelaide, where the alleged offences are said to have taken place in the mid 1980s.

Archbishop of Melbourne Denis Hart told Father Krizanac in June that he would be permanently stripped of all clerical duties,  while parishioners were believed to have been informed at Mass on Sunday.

A spokesman for the Archdiocese of Melbourne confirmed the allegations had been referred to South Australian police in April 2013 - a month before Father Krizanac was placed on "administrative leave'' by the church.

The alleged victim received a financial settlement from the  church, but refused to assist police, who were unable to investigate the matter.

A close friend of Father Krizanac, Anton Vucic, said the Bosnian-born priest was the victim of a vendetta by the church hierarchy, which was trying to "clear the decks'' before the royal commission. Mr Vucic claimed the church had paid the alleged victim in a bid to buy her silence.

"They have paid her off and shut her up plus they get rid of a man who has been denied natural justice and due process.

"Father Mato has told me that he can refute the three main allegations against him, but the church refused to listen,'' Mr Vucic said.

A spokesman for the Catholic Archdiocese of Melbourne denied any attempt by the church to silence the woman, and said the financial settlement was not bound by confidentiality provisions.

Last week, the chief  of the church's  Truth, Justice and Healing Council,  Francis Sullivan,  said: "The days of the Catholic Church investigating itself are over''.

In a letter to parishioners of the Croatian Catholic Centre at St Nicholas' Church, Archbishop  Hart said the Archdiocese of Melbourne was "committed to ensuring the protection of all children''.

"When the outcome was conveyed to Father Krizanac, he took the decision to return to Bosnia. I have had numerous communications with His Eminence, Vinko Cardinal Puljic, Archbishop of Vrhbosna, Sarajevo, to insure he was fully informed of the allegations, the process of the investigation and the findings,'' Archbishop Hart said in the letter.

Fairfax Media can also reveal Father Krizanac, who did not respond to requests for comment, has been accused of misappropriating church funds while serving as a priest in Melbourne for more than 25 years. The Vicar-General of the Archdiocese of Adelaide confirmed it had received similar complaints in May 2013. Father Krizanac had been banned from holding Mass for the Croatian community at a Fawkner church, following a dispute with another priest over the distribution of collection plate donations.

As a diocesan priest, Father Krizanac was not bound by the vow of poverty. Title searches reveal he paid $465,000 for an investment property in Fawkner, which was rented out for $380 a week.

In the early 1990s, Father Krizanac was apprehended by Australian Federal Police as he boarded a flight to the former Yugoslavia with several hundred thousand dollars in his luggage that had not been declared to customs. The money was raised by the local Croatian community and AFP officers accepted it was intended for humanitarian purposes in war-torn Bosnia.

The latest scandal to engulf the Catholic Church comes as Cardinal George Pell and Archbishop Hart face scrutiny from the royal commission this week over the church's Melbourne Response, which was established in 1996 to deal with horrific sexual abuse by clergy.

An interim report released by the royal commission in July revealed more than 1700 private sessions had been held for victims, with the Catholic Church accounting for 61 per cent of all clerical abuse.

Commission chairman Peter McClellan has called for a two-year extension and an additional $104 million in funding from Attorney-General George Brandis, who is still considering the request.

Without more time and funding, the commission has warned, thousands of victims will not have the opportunity to tell their stories.

Christine Foster will be the first person to speak at the commission on Monday. Two of her daughters were attacked by paedophile Catholic priest Father Kevin O'Donnell, who assaulted more than 100 boys and girls over a 50-year period.