An IT expert has been charged with hacking into Kenya’s Revenue Authority and stealing $39m (£31m).
Alex Mutungi Mutuku, 28, is accused of electronic fraud but he denies any wrongdoing.
The prosecution says he is part of an international network stealing money from several state bodies.
The government says there is a ring involving expatriates from the United States and other countries, along with police officers and civil servants.
A thorough background check on state employees is now being conducted, government spokesperson Eric Kiraithe told the BBC.
Other state agencies affected by the alleged hacking include the e-citizen online payment portal where users pay for government services.
Mr Mutuku was arrested after police conducted an operation following a tip-off that institutions were losing money.
A lawyer for Mr Mutuku, Tacey Makori, has asked for him to be released, arguing that police had failed to show enough evidence to warrant an extended detention.
‘Tip of the iceberg’
He is being held while anti-cybercrime officers dig deeper into what they believe is an elaborate fraud scheme with international connections.
It allegedly involves hackers with access to high-tech equipment and software which enabled them to steal from corporations, Kenya’s Standard newspaper reports.
“It is a case of remote control hacking where the suspects operate smoothly with their machines and the next minute you realise you have no money in your account,” state prosecutor Edwin Okello is quoted by the newspaper as saying.
“The information we have is just a tip of the iceberg. The racket is big and involves people outside the country.”
The cybercrime unit says Kenya lost $165m (£132m) through hacking in 2016.
Earlier this month, several people including foreign nationals were arrested in Nairobi over their involvement in theft of funds through hacking.
Ten suspects have so far been charged in court.