Azimut-Benetti, a top luxury yacht maker in Italy, said it was the "victim of contractual fraud" in the order for the two vessels from an Austrian client.

The company received what appeared to be a normal order through its agent in Austria, it said in a statement.

The client "then ceded the order, as happens occasionally, to a Chinese company, saying the final destination was China," the statement said.

Italy's financial police found that "behind an apparently legitimate deal there was an attempt to violate the international embargo against North Korea," it added.

The financial daily Il Sole 24 Ore said the yachts, worth 13 million euros (18.5 million dollars), were destined for Kim in defiance of international sanctions against Pyongyang.

Italian police confiscated the two boats more than two months ago to enforce the sanctions against the impoverished East Asian country, a government official told AFP earlier.

"The yachts were bound for North Korea and were seized because they violated European Union and international rules based on UN resolutions against exporting luxury goods to this country," he said.

The eccentric Kim has been portrayed by visitors and North Korean defectors as someone who enjoys fine dining, cognac and other luxuries.

The communist state however suffers widespread food shortages and relies on overseas aid to feed millions of its people.

Il Sole reported that Italian financial police had determined that the Chinese company was linked to Kim.

It said both Italian and Austrian police were convinced that the North Korean leader had paid for the yachts.

The Florence edition of the daily Corriere della Sera, which was the first to report the story on Tuesday, said police searched the offices of the Austrian company.

Azimut-Benedetti said the Italian authorities had "recently" returned the yachts to the company's possession.

The paper said Italian and Austrian investigators suspected that the boats were to be used in "industrial spying activities."

The United Nations tightened sanctions on Pyongyang last month following the Stalinist state's May 25 underground nuclear test.

Pyongyang was already under sanctions imposed in 2006 after its first nuclear test.

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