French former president Sarkozy in custody

Samuel Petrequin
AAP

France's former president Nicolas Sarkozy has been placed in custody as part of an investigation that he received millions of euros in illegal financing from the regime of the late Libyan leader Muammar Gaddafi

A judicial source with direct knowledge of the case told The Associated Press that Sarkozy was being held at the Nanterre police station, west of Paris. The person spoke on condition of anonymity because he was not authorised to discuss the matter publicly.

Sarkozy and his former chief of staff denied wrongdoing in the case, which involved funding for his winning 2007 presidential campaign.

Though an investigation has been under way since 2013, the case gained traction some three years later when French-Lebanese businessman Ziad Takieddine told the online investigative site, Mediapart, that he delivered suitcases from Libya containing 5 million euros in cash to Sarkozy and his former chief of staff Claude Gueant.

A lawyer for Sarkozy did not immediately respond to a message from the AP seeking comments.

Investigators are examining claims that Gaddafi's regime secretly gave Sarkozy 50 million euros overall for the 2007 campaign. Such a sum would be more than double the legal campaign funding limit at the time of 21 million euros. In addition, the alleged payments would violate French rules against foreign financing and declaring the source of campaign funds.

According to Le Monde newspaper, investigators have recently handed to magistrates a report in which they detailed how cash circulated within Sarkozy's campaign team.

In January, a French businessman suspected of playing a role in the financing scheme, Alexandre Djouhri, was arrested in London on a warrant issued by France "for offences of fraud and money laundering."

Le Monde said French investigators were also in possession of several documents seized at his home in Switzerland.

Sarkozy had a complex relationship with Gaddafi. Soon after becoming the French president, Sarkozy invited the Libyan leader to France for a state visit and welcomed him with high honours.

But Sarkozy then put France in the forefront of NATO-led airstrikes against Gaddafi's troops that helped rebel fighters topple his regime in 2011.

It is not the first time that Sarkozy has faced legal troubles. In February 2016, he was handed preliminary charges by French magistrates for suspected illegal overspending on his failed 2012 re-election campaign and ordered to stand trial.