* Austrialian watchdog reduced sum transferred from Vatican
* Vatican sought review after watchdog reported huge figure
* Original figure prompted speculation of money laundering (Adds quote from former Vatican treasurer, more background)
By Philip Pullella
VATICAN CITY, Jan 13 (Reuters) - Australia's financial watchdog has drastically reduced the sum of money it says was sent from the Vatican to Australia, the Vatican said on Wednesday, after it earlier reported a huge figure which raised suspicions of money laundering.
The joint Vatican-Australian review showed only A$9.5 million ($7.35 million) transited between 2014 and 2020, a fraction of the A$2.3 billion ($1.77 billion) originally reported by the watchdog to widespread astonishment.
The Vatican contested the huge figures in December and asked the Australian financial intelligence unit, known as AUSTRAC, to review its calculations. Some media had speculated that the Vatican could have been used to launder money.
AUSTRAC's error was first reported by the Australian newspaper earlier on Wednesday, which said it was due to a computer coding mistake.
A Vatican statement called the mistake "a huge discrepancy". It said the A$9.5 million sent to Australia was mostly to meet "contractual obligations" as well as "ordinary management", which appeared to be a reference to its embassy in Australia.
The Vatican had said the original report of the huge amount of money and more than 47,000 individual transfers had sounded like "science fiction", because the Holy See's annual budget is about 330 million euros; it demanded a review.
The Australian said AUSTRAC had told the newspaper the new calculations showed there had been only 362 transfers in that period.
Cardinal George Pell, who was the Vatican's treasurer from 2014 to 2017 told Reuters on Wednesday: "I was relieved to hear that billions were not laundered through the Vatican while I was head of the Secretariat for the Economy."
Pell, who is now in Rome, returned to his native Australia in 2017 to face charges of historical sexual abuse and spent 404 days in jail before his conviction was overturned last April.
Archbishop Mark Coleridge of Brisbane told Reuters last month that the Australian Church was not aware of any such transfers and that the bishops had sought clarification from the Vatican and AUSTRAC. ($1 = 1.2923 Australian dollars)
(Reporting by Philip Pullella; editing by Alison Williams, William Maclean and Philippa Fletcher)