Paris: Former French president Nicolas Sarkozy was held in custody on Tuesday and questioned by magistrates investigating whether late Libyan leader Muammar Gaddafi helped finance his 2007 election campaign, an official in the French judiciary said.

It is the second major judicial investigation to fall on the 63-year-old, who served as president from 2007-2012. He already faces trial on separate charges of illicit spending overruns during his failed re-election campaign in 2012.

A lawyer for Sarkozy could not immediately be reached for comment. The former president has dismissed the Libya allegations as "grotesque" and a "crude manipulation".

France opened an inquiry into the Libya case in 2013, after reports by French website Mediapart based on claims by Franco-Lebanese businessman Ziad Takieddine, who said he had transferred €5 million euros ($8 million) from Gaddafi's former intelligence chief Abdullah Senussi to Sarkozy's campaign director.

Months after he took office in 2007, the French leader came in for criticism for hosting a state visit by Gaddafi during which the Libyan leader pitched his trademark Bedouin-style tent next to the Elysee Palace.