Appearing before deputies in Strasbourg, Joseph Muscat heard criticism of the Maltese authorities' perceived lack of cooperation with the European Parliament's money laundering, tax avoidance and tax evasion committee (PANA).
The committee was set up to probe money laundering and tax evasion.
Deputies also voiced doubts about the rule of law in the country, claiming that the police authorities had not followed up on the findings of Malta's anti-money laundering agency.
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One senior MEP called for the Maltese Police Commissioner to start formal investigations into the allegations of money laundering in Malta.
However, some members leapt to Muscat's defence, saying the plenary debate risked condemning Malta before facts had been fully established.
Some MEPs in the debate with Muscat also argued that Parliament should not delve into issues which remained the prerogative of sovereign nations.
Muscat faced allegations that senior members of his government were involved in money laundering. Despite several senior officials being implicated in the Panama Papers, there has to date been no major inquiry and the named officials remain in post.
Despite several reports from the Maltese anti-money laundering intelligence unit (FIAU), prosecution procedures have not been opened.
Parliament's Greens/EFA group financial and economic policy spokesperson Sven Giegold says that the Commission must initiate an investigation into whether the Maltese government has violated the EU money laundering directive.
The German MEP said, "The Maltese government officials face serious allegations that it is either passively allowing, or directly involved in, money laundering.
"Muscat did little to dispel these suspicions and the Commission must quickly investigate whether Malta has violated EU anti-money laundering rules and complied with EU rules for bank licensing. If the suspicions are confirmed, the Commission would surely have no choice but to initiate an infringement procedure.
"Until now, the Maltese government has been highly reluctant to cooperate with the Panama Papers investigation underway in Parliament. They cannot continue to stall and must provide evidence before the committee."
Further reaction came from committee member Eva Joly, who said, "We expect to see action in Malta, too. If Muscat is serious about restoring his reputation, he must initiate a thorough inquiry into these allegations, sparing no one in his inner circle.
"The Maltese Police Commissioner must likewise be instructed to start formal investigations into the allegations of money laundering."
Replying at the end of the debate, Muscat said that it was only right to allow the ongoing judicial investigations to conclude before judging those accused, adding that resignations would be in order in the event of prosecutions.
He also said that the MEPs' criticism about Malta's structures stemmed mainly from press articles, rather than the analyses of international financial bodies.
Muscat also confirmed to MEPs that he would appear before the PANA committee once the ongoing judicial procedures in Malta had concluded.