The announcement is a blow for the Japanese trading company, which invests in everything from salmon to natural gas and trades many commodities around the world.
It is the first loss of its kind in Mitsubishi's storied history, a company spokesman told Reuters.
It may be the biggest loss in the oil markets - where trades often blow up - since China's Sinopec Corp said last year it lost about $700 million on crude hedging.
In what will be a reminder of the collapse of Barings Bank after Nick Leeson's trades in Singapore in 1995, and the huge losses at Societe Generale by rogue trader Jerome Kerviel in 2008, the trader that Mitsubishi has alleged carried out a series of unauthorized trade this year disappeared in August.
While trying to locate the trader who had not returned to its Petro-Diamond Singapore (PDS) oil unit after a holiday, Mitsubishi discovered the losses, a spokesman told Reuters.
The PDS employee, who handled crude oil trades for China, "was discovered to have been repeatedly engaging in unauthorized derivatives transactions and disguising them to look like hedge transactions since January of this year," Mitsubishi said in a statement.
While PDS has closed the positions, "we are now examining the total amount of losses," Mitsubishi said, adding that the issue has been reported to the police and the trader's contract terminated. Mitsubishi said it could not identify the trader.
The former employee's desk phone has been disconnected and calls to his cell phone went straight to voicemail.
A PDS representative in Singapore said it could not comment beyond the statement from its parent. Singapore police did not immediately reply to a Reuters query on the matter.
Mitsubishi has a reputation as a careful trader and only reported its first group annual loss in 2016, when commodities markets slumped. It was founded in 1954.
"It's a bit surprising (because) in the Japanese houses there are a lot of checks and double-checks but I'm not sure what automated compliance systems there are, or if they have any," said one long-time trader in the Asian market, who has worked at a Japanese trading house.
Oil prices have been volatile this year. Prices had fallen sharply from a peak in April above $75 a barrel, and then they shot up nearly 20pc this week after an attack on Saudi Arabian oil facilities.
Other Singapore-based traders expressed shock at the latest incident of rogue trading.
"PDS needs to straighten compliance and risk management. It's so shocking. The amount is huge," said one trader.
The Mitsubishi spokesman could not say what the impact on the trading house's earnings would be. Profit totalled more than $5 billion in the year through March 2019.
The company announced the loss after trading in its shares ended for the week. Mitsubishi shares fell 0.8pc on Friday, while the Nikkei 225 index rose slightly.