A top Tibetan monk who is seen as a potential successor to the Dalai Lama is to be prosecuted for money-laundering after an Indian court overturned a decision to drop charges, police said Thursday.

At a hearing on Wednesday at the Himachal Pradesh High Court, a judge issued an order for authorities to open criminal proceedings against Karmapa Urgyen Trinley over the recovery of around $1 million in foreign currency during a raid on his Buddhist monastery four years ago.

Although criminal conspiracy charges were filed in the aftermath of the raid, a district court had dismissed the case in 2012 in a verdict that was later appealed and the subject of Wednesday's hearing.

"The impugned order of May 21, 2012, passed by the judicial magistrate of Una is quashed and dismissed," Judge Sureshwar Thakur said in his judgement, a copy which has been obtained by AFP.

Local police chief Anupam Sharma confirmed that the first step in bringing a prosecution had begun.

"We have already filed a chargesheet in the court against him," Sharma told AFP, meaning that police have filed an outline of the evidence against the accused with the court.

The case dates back to a raid in January 2011 on a monastery in the Himalayan town of Dharamshala in which investigators say stacks of bank notes from 26 different currencies were recovered, including more than $100,000 worth of Chinese yuan.

The raid came after two people were pulled over by police in a car containing large amounts of cash. During interrogations, the pair said the money was meant for a land deal involving a trust headed by Trinley.

The 30-year-old Trinley has denied any wrongdoing, saying the bank notes found in the monastery were donations from devotees which had accumulated over the years and that he had no involvement in the land deal.

The monk is revered by followers as the 17th incarnation of the head of the Karma Kagyu lineage, one of the four major schools of Tibetan Buddhism.

He fled Tibet at the turn of the century at the age of 14, reaching India after an eight-day journey by foot and horseback over the Himalayas.

Since fleeing, he has mainly lived at the Gyuto Monastery in Dharamshala, the northern Indian hill station that is the seat of the Tibetan government in exile.

Trinley is recognised by both China and the Dalai Lama as the reincarnation of the Karmapa Lama, head of the Karma Kagyu lineage, one of Tibetan Buddhism's four major schools.

He is seen as as having the highest profile of a cast of young lamas who could succeed the Dalai Lama who has just turned 80.

His appearances with the Dalai Lama have fuelled speculation he is being groomed as the Nobel peace laureate's spiritual successor.

His spokesman Kunzang Chungyalpa said Trinley has great faith in India's judicial system.

"He strongly believes truth will prevail at the end," he told AFP.