A former insurance executive from Virginia has purchased one third of the stock of the First International Bank of Israel in what is believed to be the biggest single investment by an individual in Israeli history.

John D. Marsh of Gainesville, former chairman of the Variable Annuity Life Insurance Co; purchased the bank shares for $12 million from the First Pennsylvania Corp.

In announcing the sale last week, first Pennsylvania said it took the action to permit the Israel bank -- the fourth largest in that country -- to open branches in the United States. Because of its association with First Pennsylvania, the Israel bank was forced to honor U.S. banking laws prohibiting branches. Other large Israeli banks have branches in the United States.

The sale appeared to catch at least some Israeli government officials by surprise. Dr. Zevi Dinstein, economics minister for the Israeli embassy, claimed the bank had failed to notify his government of the sale prior to the transaction.

Dinstein claimed that, while the Israeli central bank did not require prior notification for sales involving less than a majority of a bank's stock, first Pennsylvania had agreed to notify the Israeli government if a buyer had been found for the stock.

"This procedure has not been followed," Dinstein said.

First Pennsylvania Chairman John Bunting denied that the Israeli officials had no knowledge of Marsh's identity prior to the sale. He indicated that only Dinstein was surprised by the sale.

Marsh sold his insurance firm to Aetna Life and retired to the Virginia countryside where he breeds horses. Contacted at his Gainesville home, Marsh declined comment on the bank purchase. He referred all questions to his Washington attorney, Roger Nelson.

Nelson would not comment either. "I don't have anything to say at this point," Nelson said. "The deal has not been concluded as yet."

Israeli business sources operating in New York raised questions this week as to why an elderly businessman with no known knowledge of Israeli banking would risk a large portion of his personal fortune on the bank.

Two other holders of First International Bank of Israel stock -- the New York-based Israel Investors Corp. and the Montreal-based Canada Israel Development Corp. -- had negotiated for the purchase of the stock held by First Pennsylvania, but were unwilling to meet the price paid by Marsh.

Bunting said Marsh bought the Israeli bank stock because he trusted both First Pennsylvania and Morris A. Schapiro, the New York bank securities dealer who negotiated the sale.