A spokesman for Lauder on Thursday dismissed the allegations as "a distortion of the truth".
The move by IKG, Austria's official representative of Jews, is an unusual slap at Lauder, son of cosmetic mogul Estee Lauder and a major supporter of Jewish communities around the world.
In a letter to Jewish leaders in Europe dated December 3 and seen by Reuters, IKG President Oskar Deutsch accused Lauder of offering incentives to IKG board members to support rival candidate Martin Engelberg as president.
The incumbent Deutsch won the election.
Lauder and Engelberg strongly deny wrongdoing.
"It was Ambassador Lauder's counsel that the Jewish community of Vienna decide their own path and vote according to their individual conscience and their own best interest," said Gary Lewi, a Lauder spokesman.
"To suggest otherwise is a deliberate and cynical distortion of the truth."
Engelberg said the claims against him and Lauder were "emotional and beyond reason."
"My party contacted Ron Lauder (to see) if he would support our projects, like youth centers, since they were aligned with his previous and evident philanthropic interests," Engelberg said.
"A major issue for my campaign was to support the community development and Jewish life instead of creating archives and investing in real estate as is currently done."
Ban does not include Vienna synagogues
Vienna's Jewish community was largely annihilated in the Nazi Holocaust and now has only 8,000 members. Engelberg said most young Jews were immigrants from the former Soviet Union and needed more help.
But Deutsch told Reuters, "It is unacceptable for Ron Lauder, someone who is outside of our community, to try to interfere with or buy our elections.
"This goes against the rules of his position as president the World Jewish Congress and is wrong."
The European Jewish Congress (EJC), a regional arm of the world body, said it would set up a panel of "eminent personalities" to investigate the alleged interference.
"According to our constitution and by-laws in no way should (the president) interfere in the internal affairs of the domestic communities. A member community has turned to us and we take this very seriously," said Serge Cwajgenbaum, secretary general of the EJC.
The ban against Lauder does not include Viennese synagogues but covers other IKG property like schools and nursing homes, Deutsch said.