NEW YORK, Dec 6 (Reuters) - The co-founder of Hong Kong-registered virtual currency exchange Bitzlato, a Russian national who U.S. authorities have accused of processing about $700 million in illicit funds, pleaded guilty to a U.S. criminal charge on Wednesday and agreed to forfeit $23 million in a deal with federal prospectors.

Anatoly Legkodymov, Bitzlato's majority owner and co-founder, entered the guilty plea to one count of operating a money-transmitting business that transported and transmitted illicit funds at a hearing before U.S. District Judge Eric Vitaliano in Brooklyn.

Legkodymov, who according to U.S. officials ran Bitzlato from the Chinese city of Shenzhen, said in court that he became aware that some of Bitzlato's clients had used the platform to transfer cryptocurrency derived from illicit activity.

He acknowledged that ransomware proceeds from Hydra Market, which prosecutors described as an online marketplace used for drugs, stolen financial information and money laundering services, made their way onto the Bitzlato platform. U.S. and German law enforcement shut down Hydra Market in April 2022.

"He was well aware that Bitzlato, his cryptocurrency exchange, was being used like an open turnstile by criminals," Breon Peace, the top federal prosecutor in Brooklyn, said in a statement.

Bitzlato's website has been replaced by a notice saying the service has been seized by French authorities as part of a coordinated international law enforcement action.

Legkodymov, 41, faces up to five years in prison when the judge sentences him. No sentencing date was set. Legkodymov was arrested in Miami on Jan. 17 and held at the Metropolitan Detention Center in Brooklyn since then.

His guilty plea represented the latest victory in U.S. law enforcement's crackdown on fraud and illicit finance in the cryptocurrency markets.

Last month, FTX founder Sam Bankman-Fried was convicted on charges of stealing billions of dollars from that cryptocurrency exchange's customers, while rival Binance agreed to pay a $4.3 billion settlement and CEO Changpeng Zhao pleaded guilty to breaking U.S. anti-money laundering laws.

Binance was among Bitzlato's top counterparties, according to U.S. authorities.

Russia's embassy in Washington called for Legkodymov's release in April after Ambassador Anatoly Antonov visited him in jail. Hours earlier, Russia had denied a U.S. embassy request to visit detained Wall Street Journal reporter Evan Gershkovich.

A U.S. State Department spokesman said on Tuesday that Russia in recent weeks rejected a proposal for the release of Gershkovich and Paul Whelan, two Americans considered by the U.S. to be wrongfully detained in Russia.

(Reporting by Luc Cohen in New York; Editing by Will Dunham)