It is claimed Sarkozy took thousands of euros in cash-stuffed envelopes from elderly billionaire L'Oreal heiress, Liliane Bettencourt. The donations in question allegedly amounted to 150,000 euros ($193,000), well above the 4,600-euro legal limit on individual campaign contributions.

Sarkozy, 58, is accused of taking advantage of a vulnerable person. Thursday's announcement came after hours of questioning in a courthouse in the southwestern city of Bordeaux, according to the prosecutor's office. Sarkozy's lawyer Thierry Herzog said he would immediately appeal the "legally incoherent and unfair" decision, according to the news agency AFP.

Under French law, a formal investigation is the final step before a suspect is accused of a crime.

"Nicolas Sarkozy, who benefits from the presumption of innocence, had been notified that he has been placed under formal investigation for taking advantage of a vulnerable person in February 2007 and during 2007 to the detriment of Liliane Bettencourt," said the prosecutor in Bordeaux.

Antoine Gillot, a lawyer for Bettencourt's former butler, who was also questioned on Thursday, told French television channel i-Tele that Judge Jean-Michel Gentil placed Sarkozy under investigation - a step short of formal charges.

Sarkozy, a conservative, lost his immunity from prosecution when he was defeated in the 2012 presidential election by the socialist Francois Hollande.

He was first questioned about the Bettencourt affair last November, when he was designated a witness into the inquiry. At the time, three investigating magistrates indicated there was not enough evidence to charge Sarkozy, after questioning him for 12 hours.

The former president has denied any wrongdoing.

Liliane Bettencourt, 90, was placed under legal guardianship last year after her daughter accused her advisers of manipulating her for personal gain.

jr/av (Reuters, AFP, AP, dpa)