About 1,000 demonstrators, divided between supporters and opponents of the leftwing leader, scuffled outside the court in Brazil's biggest city before police intervened with swinging truncheons and tear gas. Brazilian television footage showed several demonstrators falling to the ground and being repeatedly clubbed by officers.
Lula, 70, is a divisive figure in Brazil, where he was president from 2003 through 2010.
Supporters hail him as a historic politician who used Brazil's commodities-driven boom to lift millions out of severe poverty. However, his popularity has fallen since the country's slide into recession under his hand-picked successor Dilma Rousseff and the emergence of a huge corruption scandal at state oil company Petrobras.
Lula has faced questioning in the matter before and has not been charged. But this would have been the first time he appeared as a suspect for what is classified as money laundering through hiding of assets.
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The Council said the suspension was ordered after a member of Lula's Workers' Party questioned the impartiality of the prosecutor in the case, Cassio Conserino. The prosecutor has drawn fire for saying in the Brazilian media that there were grounds for criminal charges, even though the evidence gathering stage was incomplete.
The property is registered to OAS, a firm linked to the Petrobras scandal, but allegedly belongs really to Lula. The apartment also allegedly underwent a $200,000 remodeling paid for by OAS.
Authorities have said that apartments in the development had been used by OAS as bribes.
Supporters hope Lula will come back in 2018 after Rousseff steps down at the end of her second term. But with the Workers' Party discredited by the Petrobras scandal and Rousseff herself facing impeachment on unrelated allegations, the apartment allegations are a major risk for Brazil's left.