He has also sued Mediapart, which has led media coverage of the Libyan allegations since 2012 when it published a document allegedly signed by Libya's intelligence chief showing that Kadhafi had agreed to fund Sarkozy to the tune of 50 million euros ($62 million).
Former French president Nicolas Sarkozy has been placed under formal investigation over allegations he received millions of euros from then Libyan leader Moamer Gaddafi's regime to finance his 2007 campaign, a judicial source said late Wednesday.
Sources close to the inquiry say it was expanded in January to include suspected "illegal campaign financing", after police issued a report indicating large amounts of cash spending by Sarkozy's team during the 2007 campaign.
The charges came after Mr Sarkozy was questioned for two days by anti-corruption police at a station in Nanterre, north west of the French capital.
Sarkozy, who served as president from 2007 to 2012, has always denied receiving any illicit campaign funding and has dismissed the Libyan allegations as "grotesque".
Possible charges in this case would be influence peddling, fraud, handling of stolen goods and money laundering.
The interrogation - first to be subjected to former president since opening of this research in 2013 - focuses on France's complex relations with Muammar Gaddafi's Libya during Sarkozy's presidency, and can compromise credibility of Elections that gave him victory.
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Brice Hortefeux, a Sarkozy ally who was a top minister during his presidency, was also questioned Tuesday until about 11:30 pm.
In 2011, as NATO-backed forces were driving Kadhafi out of power, Seif al-Islam told the Euronews network that "Sarkozy must first give back the money he took from Libya to finance his electoral campaign".
In November 2016, Ziad Takieddine told the French news website Mediapart that in 2006-2007 he had handed over three suitcases stuffed with 200- and 500-euro notes to Mr Sarkozy and Claude Guéant, who was his chief of staff.
The charges involving illegal campaign funding from a foreign dictator are the most serious faced by a former French president in recent history.
Sarkozy has already been ordered to stand trial in a separate matter concerning financing of his failed re-election campaign in 2012, when he was defeated by Francois Hollande. He claimed he personally handed a suitcase containing €2m in cash to Sarkozy at the then-candidate's apartment and another suitcase with €1.5m to Sarkozy and a close aide at the French Interior Ministry.
"He's a real liar", Takieddine said of Sarkozy.
The sum would be more than double the legal campaign funding limit at the time - 21 million euros.