Allegations that former Victorian Liberal state director Damien Mantach embezzled up to $1.5 million in party funds have reopened deep internal wounds, with power players warning of a bitter factional fallout.

Sources from across the party's informal factions agree that the base problems centre on Mantach.

​But a fight has already begun over a culture that, party president Michael Kroger alleges, allowed misuse of funds over years, undetected. That fight is about control of the party.

Insiders from different groupings agree that resurrected president Kroger is intent on using the crisis to sideline long-standing factional opponents traditionally linked to Jeff Kennett and Ted Baillieu but who now tend to be aligned to administrative committee member Tony Snell.

A senior figure from the Kroger camp told Fairfax Media on Thursday that the party's existing Victorian administrative committee - dominated by non-Kroger people including Snell and party treasurer Andrew Abercrombie - had overseen a lax organisational culture.

Kroger himself said the embezzlement "should have been detected a long time ago".

"It should never have happened," he said, pledging to ensure it did not - words clearly intended to flag drastic change at party headquarters.

A Kroger-linked source described the state party chief - a controversial 1980s-era president re-elected in March this year - as a "minority government", pointing out that he currently did not have the numbers on party's administrative committee.

The insider agreed Kroger would use the current crisis to put his mark on the party.

One Baillieu-aligned powerbroker  said the party now faced a "hard right" takeover by Kroger forces. The insider argued a shift to the right would be a fatal mistake in Victoria, and at odds with the state's tradition of Menzies Liberalism.

Fairfax Media understands old tensions surfaced behind closed doors on Thursday over a push for an internal investigation of past financial management. One Kroger source said the proposed investigation was resisted by senior figures including Andrew Abercrombie and John Elliott.

Kroger opponents – the more socially progressive Liberals – say the president is seeking to rebuild a diminished personal power base, and to deliver plum seats to factional supporters.

But his backers insist Kroger only wants to "professionalise" the party and find ways to ensure that high-profile achievers are pre-selected over time-serving hacks.

In March, Fairfax Media revealed Kroger's concerns that the Liberal Party was had become a soft and undisciplined party of old members and careerist MPs and was in danger of being electorally "killed" by Labor if it did not toughen up.

In a leaked recording of an intimate party meeting, Kroger criticised his own party for failing to connect "emotionally" with voters, and for being more of a social network than political fighting machine.

Kroger was elected unopposed for his second stint as state party president. At the time Liberal sources from across the factions agreed their revived chief was paving the way for internal reform and, possibly, a potentially divisive shift of power from rank-and-file members to a pared back central executive.

Kroger was president from 1987 to 1992 and a leading figure of what was known at the time as the "New Right'. In his first term as president he backed successful pre-selection challenges against long-term sitting members, including by his then close friend Peter Costello for the blue ribbon seat of Higgins.

In March, sources close to Kroger confirmed a possible review of the party structure but said it was unlikely until after next year's federal election.

The alleged theft of funds, the image of a party unable to handle its own finances, and the prospect of internal ructions in Victoria is a new disaster for already beleaguered Liberal Prime Minister, Tony Abbott.