In a notice sent to lawyers for general manager Adriano Galliani and such stars as Marco Van Basten and Paolo Maldini, prosecutors charge that from 1991 to 1997 Milan was illegally playing in the prestigious Serie A, the Rome-based daily La Repubblica reported.
Milan won the Italian soccer league title in 1992, 1993, 1994 and 1996.
Team officials fired off a response Tuesday afternoon, saying the prosecution had "distorted the facts that have emerged from the investigation and has drawn connections between completely unrelated episodes."
Prosecutors could not be reached for comment Tuesday.
The latest charges are part of an ongoing investigation into accusations of false bookkeeping by AC Milan owner Silvio Berlusconi, who is currently running for Italian prime minister.
The soccer-related charges are among many criminal cases that have been opened against the media magnate, who has proclaimed his innocence and insisted all the charges are politically motivated.
In other Milan news, Brazilian veteran Leonardo said Tuesday that he will leave AC Milan at the end of this season, and loyalty would prevent him from joining another Serie A team.
The creative playmaker, whose contract ends in June, had said in November that he might return to Brazil in mid-season because nagging injuries were preventing him from breaking into the star-studded Milan lineup.
