SYDNEY, Oct 11 (Reuters) - Star Entertainment Group Ltd saw its shares fall by a quarter on Monday after media outlets detailed a confidential review accusing the Australian casino operator of failing to rein in money laundering and fraud at its two resorts.

The company branded the reports "misleading". Its stock's deepest dive since the first COVID-19 lockdown of early 2020, however, reflects investor fear of drawn-out regulatory scrutiny for a sector already trying to reinvent itself since a Chinese anti-gambling campaign stopped an influx of high-rollers.

It also undermines the clean image the firm has presented as larger rival Crown Resorts Ltd endured two years of misconduct accusations during public inquiries. Crown now faces possible suspension of its biggest-earning casino.

The Sydney Morning Herald and Age newspapers, and current affairs programme 60 Minutes, on Sunday said an unpublished KPMG review commissioned by Star and dated 2018 found the company "profoundly failing to combat the risk of money laundering, terrorism financing and corruption with its Sydney and Queensland casinos".

Star, in a statement, said it was "subject to thorough and ongoing regulatory oversight including compliance checks and reviews across the company's operations".

KPMG declined to comment when contacted by Reuters.

Star's shares closed down 23%, against a broader market decline of 0.3%, as investors braced for a fresh round of regulatory attention.

"The evidence is so damning that it's hard to see the CEO and board keeping their jobs," said Nathan Bell, portfolio manager of Intelligent Investor, which holds Star shares.

"If the top brass knew anywhere near as much as suggested, at the very least the company should've come clean when Crown's dirty laundry was aired," he said in an email to Reuters.

Allegations against Crown including lax measures to prevent money laundering prompted inquiries in the three Australian cities where it operates. The first resulted in Crown's gambling licence being suspended in Sydney just before the opening of a A$2.1 billion ($1.5 billion) casino development a mile (1.61 km) from Star's resort - home of Sydney's only operational casino.

An inquiry into Crown's Melbourne casino is due to issue its final report on Oct. 15, and an inquiry into Crown's casino in Perth reports back in 2022.

Anti-money laundering watchdog the Australian Transaction Reports and Analysis Centre said it began an "enforcement investigation" into Star in June, prompting a market disclosure by Star then, but declined to comment further since the investigation was ongoing.

($1 = 1.3648 Australian dollars) (Reporting by Byron Kaye; Editing by Christopher Cushing and Stephen Coates)