Jean-Francois Cope agreed to step down at the request of fellow heavyweights in the Union for a Popular Movement (UMP) following the latest twist in an scandal engulfing him and a PR firm owned by two close friends.
The 50-year-old leader's position became untenable after Sarkozy's former deputy campaign director gave an explosive television interview yesterday evening.
Jerome Lavrilleux tearfully claimed that bills for Sarkozy's failed 2012 re-election campaign were passed off as invoices for party meetings in order to skirt round France's strict limits on campaign financing.
As party leader Cope was responsible for authorising the payments made to Bygmalion.
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According to a lawyer for the company, the amount billed to the UMP that should have been charged to Sarkozy's campaign amounted to more than USD 13.6 million.
The lawyer says the company was pressured to falsify the bills or risk not getting paid.
While Bygmalion has sought to explain the false bills as an attempt to help Sarkozy, some senior UMP figures suspect the company of simply seeking cash, with the connivance of Cope.
The most serious of them involves allegations that he received undeclared cash from former Libyan dictator Moamer Kadhafi.
Sarkozy was cleared last year of personally accepting envelopes stuffed with cash from France's richest woman, L'Oreal heiress Liliane Bettencourt, but his campaign treasurer is awaiting trial in that case.