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By Philip Pullella

VATICAN CITY (Reuters) - The Vatican demanded on Tuesday that the leaders of the Knights of Malta, a worldwide Catholic chivalric and charity group, cooperate with an inquiry into alleged irregularities ordered by Pope Francis.

In the latest salvo of a battle of wills between the heads of two of the world's oldest institutions, a Vatican statement also rejected what it said was an attempt by the Rome-based Knights to discredit members of a papal commission of inquiry.

Both sides have been locked in a bitter dispute since one of the order's top knights, Grand Chancellor Albrecht Freiherr von Boeselager, was sacked on Dec. 6 in the chivalric equivalent of a boardroom showdown - ostensibly because he allowed the use of condoms in a medical project for the poor.

The all-male hierarchy of the group, whose top leaders are not clerics but take vows of poverty, chastity and obedience, have defied the pope, refusing to cooperate with the investigation of the sacking or recognise the inquiry's legitimacy.

"The Holy See counts on the complete cooperation of all in this sensitive stage," the statement said, adding that it "rejects ... any attempt to discredit (commission) members."

That was a clear rebuttal of statements and letters by the Knights' top official, Grand Master Matthew Festing. He has denounced the papal commission as intervention in the order's sovereign affairs, accused members having a conflict of interest, and has set up his own internal commission.

In a confidential letter sent to top members on Jan. 14 and seen by Reuters, Festing said the five-member papal commission was "clearly unfit to address the situation objectively".

"There are serious accusations of a conflict of interest for at least three of the members who have been proved to be linked to a fund in Geneva," Festing says, without giving details.

SOVEREIGN ENTITY

The order, formed in the 11th century to provide protection and medical care for pilgrims to the Holy Land, has the status of a sovereign entity. It maintains diplomatic relations with over 100 states and the European Union and permanent observer status at the United Nations. It has about 120,000 members.

Festing, 67, a Briton, fired von Boeselager, accusing him of hiding the fact that he allowed the use of condoms when he ran Malteser International, the order's humanitarian aid agency.

Von Boeselager said his sacking was illegitimate and appealed to the pope.

The Vatican statement appeared to reject the order's claim of total sovereignty. It said that after he receives the commission's report this month, the pope will make "the most fitting decision" not only for the order but for the whole Church.

The German's supporters say the condom issue was excuse by Festing and Cardinal Raymond Leo Burke, an arch-conservative who has criticised the pope on other issues, to increase their power.

The Church does not allow the use of condoms as a means of birth control and says abstinence and monogamy in heterosexual marriage is the best way to stop the spread of AIDS.

Von Boeselager said in a statement he shut down two projects in the developing world when he discovered condoms were being distributed but kept a third running for a while because closing it would have abruptly ended all basic medical services to poor people.

Francis has said he wants the 1.2 billion-member Church to avoid so-called "culture wars" over moral teachings and show mercy to those who cannot live by all its rules, especially the poor.

(Reporting by Philip Pullella; Editing by Tom Heneghan)

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