Kong Linghui allegedly borrowed S$1 million ($720,000) from Singapore's luxury Marina Bay Sands resort during a visit with family and friends in 2015, the South China Morning Post reported, citing the hotel's filing to a Hong Kong court.
But the Olympic gold medallist -- nicknamed "ping-pong prince" -- failed to repay the money in full and has been sent home from the World Table Tennis Championships in Germany to assist an investigation into the scandal, China's state Xinhua news agency said.
Table tennis has a huge following in China, which has long dominated the event on the global stage, and the allegations against Kong are dominating domestic headlines.
Of the S$1 million Kong is said to have borrowed from the hotel's casino, S$100,000 was used to "establish him as a premium player", the South China Morning Post reported.
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Kong has repaid S$545,625 but still owes the hotel S $454,375, it said.
It declined to comment on the legal action.
In a post on his Weibo social media account, 41-year-old Kong said he was "deeply disturbed by the negative impact" of the incident but denied he had been gambling.
"My friends and family members went downstairs to the hotel's casino to entertain themselves. I stood by to watch them. During the time they were playing I went to get chips for them and left my personal information," Kong said.
But China's top sport governing body said it had a "zero tolerance" for "any kind of violation of professional ethics and illegal acts".
"Well-known athletes and coaches should pay more attention to their public image and the social impact (of their behaviour) and take the lead in complying with disciplines and laws," the General Administration of Sport said on its website.
Kong, known for using a "shakehand" grip favoured by European competitors, ended his playing career in 2006 and become the national women's coach in 2013.
This is not the first time he has found himself in legal hot water.