With global sanctions hitting Putin and Russian entities, the move is seen as a fightback over the invasion of Ukraine. Multiple Russian oligarchs have either had similar assets seized, or taken steps to hide them, with some rushing to Dubai to cache their ultra-luxurious vessels.
Worth over £570m, The Scheherazade is more than 450ft long and comes equipped with spas, swimming pools and two helicopter pads.
Ties linking the yacht to Putin come from activists loyal to imprisoned Russian dissident Alexei Navalny.
The superyacht has been under investigation by Italian authorities since the end of March and has been seen docked in Marina di Carrara near Pisa whilst it undergoes a makeover.
Officials seized the Scheherazade amidst fears the boat was about to sail away and head for international waters to avoid sanctions being placed on the vessel.
Reports have emerged the Russian crew on board the yacht were recently replaced by British crew in order to deflect attention away from the boat.
A statement from the Italian Financial Police said: “After verification by the fiscal authorities it has come to light that there is a significant economic connection between the owner of The Scheherazade and senior elements of the Russian government.
“On the basis of these elements, it has been recommended that the yacht be placed on the current European Union sanctions list and the Minister of Finance in Rome has agreed.”
Speaking to the Mail Online, Mariateresa Levi of the Italian Financial Police said: “I am not in a position to tell you who the actual owner is but we are satisfied that the yacht should be seized and in the next few hours officers will board and impound her.”
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The Scheherazade’s captain, Briton Guy Bennett-Pearce, has denied Putin is the owner but has refused to reveal who is.
Speculation has also arisen over who else may own the superyacht.
There have been claims that the vessel may belong to Eduard Khudainatov, a Russian oil tycoon who has not been hit by sanctions.
He is the former chairman and chief executive of Rosneft, the state-owned Russian company that deals in oil and gas.
Mr Khudainatov is close to Igor Sechin, a Putin ally and chairman of Rosneft.
Much of the information about the yacht has come from supporters of Alexei Navalny.
Reports from the group suggested many of the ship’s crew were part of the Russian intelligence service, the FSB.
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The group pressured Italian authorities to seize the yacht which is registered in the Cayman Islands.
A tweet by the group said: “Ok guys we have a problem; Putin’s secret $700 million yacht is about to escape sanctions by simply taking off from Italy.
“It’s a matter of days now.
“The Italian authorities are doing nothing to stop it. So we should.”
Documents for the Scheherazade seen by Navalny’s team show the official owner is an offshore company from the Marshall Islands – a tactic commonly used by the super-rich to conceal their wealth.
Putin is also known to list family or friends as owners, with his name almost never used on official documents.
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The six-deck Scheherazade is one of the largest and most-expensive privately-owned boats in the world – with space equivalent to two apartment blocks.
The yacht has room for 18 guests in nine luxury cabins in addition to a crew of 40, residing in 20 cabins and boasts two helipads, a royal suite, a swimming pool, a spa and a beauty salon.
Speaking of the interior of the yacht, one source told The Sun: “Every surface is marble or gold.
“There are countless swimming pools, a spa, a sauna, a theatre, ballrooms, a gym, and two helipads. It’s like a mini-city.
“There is even a hospital which makes sense when you hear rumours of Putin being terminally ill.
“It is hard to swallow the fact that the most incredible ship in the world is owned by a man intent on bombing civilians in Ukraine.
“And it is an unimaginable amount of wealth when the average Russian’s salary is £5,000 a year, and people there are struggling to eat.”