Paraguay's President Santiago Peña has been removed from office following a banking crisis that disrupted access to money for millions of customers and triggered allegations of misconduct involving public funds.

Peña submitted his resignation on Thursday after losing support within his own Colorado Party. However, lawmakers refused to accept it and proceeded with impeachment proceedings, with all 44 senators present voting on Friday to remove him from office.

The decision stripped Peña of his presidential immunity. Authorities subsequently ordered him placed under house arrest.

Vice President Pedro Alliana was sworn in to complete the presidential term, which runs until August 2028.

The allegations against Peña centre on Ueno Bank, which regulators took control of earlier this week following concerns about its financial position.

Lawmakers accused the former president of helping direct public funds to the bank while regulators overlooked risky lending to bank insiders.

Peña denies allegations of breach of trust, influence peddling and using his office for personal gain, according to the Associated Press.

Authorities also ordered the arrest of former central bank chief Carlos Carvallo.

Ueno had nearly three million customers with reports suggesting 2 out of every 3 Paraguayans use its services. It also held hundreds of millions of dollars in public deposits. The regulatory intervention disrupted payments and left customers unable to access their savings, prompting protests across the country.

Some small depositors have begun receiving payouts. Paraguay's central bank says deposit insurance covers 97 per cent of Ueno's customers.

Prosecutors have charged 27 bank executives.