 "Sarkozy faces corruption probe in blow to comeback hopes")
The step, which often but not always leads to trial, is a major setback to Sarkozy's hopes of a comeback after his 2012 defeat by Socialist rival Francois Hollande. The conservative politician denies all wrongdoing in a string of investigations in which he is either directly or indirectly implicated.
Magistrates are looking to see whether Sarkozy used his influence to secure leaked details of an inquiry into alleged irregularities in his victorious 2007 campaign. He is suspected of influence-peddling, corruption and benefiting from "the breach of professional secrets," the prosecutor's office said.
Sarkozy, 59, was held in police custody in the Paris suburb of Nanterre for nearly 15 hours before being transferred in the early hours of Wednesday to a court where he met investigating magistrates who will run the inquiry.
Sarkozy's attorney and a judge involved in the case were similarly placed under formal investigation on suspicion of influence peddling, their attorneys said.
"These events only rely on phone taps ... whose legal basis will be strongly contested," said Paul-Albert Iweins, the attorney for Sarkozy's attorney, Thierry Herzog.
Sarkozy's allies cast doubts over one of the investigating magistrate's fairness, accusing the judge of political bias.
"I question the impartiality of one of the judges," Christian Estrosi, the mayor of the southern city of Nice told France Info radio, accusing Hollande's government of having whipped up "an atmosphere of hate".
Prime Minister Manuel Valls dismissed accusations of a plot, saying judges had the right to be politically active.
Placing a suspect under formal investigation means there exists "serious or consistent evidence" pointing to probable implication of a suspect in a crime.
Influence-peddling can be punished by up to five years in prison and active corruption carries a sentence up to 10 years.
It was the second time the ex-president, who lost immunity from legal prosecution a month after he left office in June 2012, has been placed under such a judicial probe. The first was in 2013 but magistrates later dropped the case against him.
Web of inquiries
There are six legal cases, including this one, hanging over the ex-president's head, a shadow that many in his UMP party believe compromises his ability to lead a comeback in 2017.
The current questioning relates to suspicions he used his influence to get information on an investigation into funding irregularities in his victorious 2007 election campaign.
Specifically, magistrates will seek to establish whether Sarkozy tried to get a judge promoted to the bench in Monaco in exchange for information on that campaign finance inquiry.
Last October, magistrates dropped a formal investigation into Sarkozy's role in irregularities in that 2007 campaign, and whether he had exploited the mental frailty of France's richest woman, L'Oreal heiress Liliane Bettencourt, to fund it.
But as investigators used phone-taps to examine separate allegations that late Libyan leader Muammar Gaddafi funded the same campaign, they began to suspect he had kept tabs on the Bettencourt case through a network of informants.
Those suspicions finally prompted police to launch an inquiry in February, which led to Wednesday's formal investigation. Under French law, a suspect is not technically charged with a crime until later in the process.
Sarkozy said last week he was "in a period of reflection" on a possible comeback expected to be announced before a scheduled meeting of the UMP to choose its next chairman in November.
While Sarkozy remains the favourite of conservatives to challenge Hollande, he is widely detested by left-wingers and his abrasive style alienated many middle-of-the-road voters.