The director of the branch and a deputy director were arrested, a source close to the investigation said.
The bank is suspected of being used to "introduce into the financial system funds earned through the alleged crimes of smuggling, tax fraud and the violation of workers' rights, allowing the transfer of the funds to China in a way that appeared legal," the police statement said.
The raids were part of a probe - dubbed Operation Snake - carried out last year against Chinese organised crime groups based in Madrid which are suspected of importing huge amounts of goods from China without declaring them on customs forms, to avoid import and tax duties.
The crime groups allegedly deposited the money earned into ICBC, which is accused of sending the funds to China without checking their origin as required by law.
One of the crime groups that was broken up last year is suspected of having laundered "an amount known to be as of the moment €40 million ($44.5million)" in the branch, the police statement said, while Spanish media reported that the full amount could be as high as €300m.
ÚLTIMA HORA https://t.co/fdENELNAhk La UCO registra el gigante chino ICBC por ayudar a blanquear 300 millones- EL PAÍS (@el_pais) February 17, 2016
Authorities suspect this system could have been employed in other nations and Europol is taking part in the investigation.
Two armed police in green uniforms were guarding the entrance of the branch located on the leafy Paseo de Recoletos, a wide boulevard in the centre of Madrid.
ICBC opened the branch, its first in Spain, in January 2011 as part of a push into several new markets in Europe. ICBC's foreign operations accounted for about 10 percent of its total assets at the end of last year.