Former French President Nicolas Sarkozy has been placed under formal investigation over allegations he received campaign funding from late Libyan leader Muammar Gaddafi, the BBC reports.

He is being investigated for illicit campaign financing, misappropriation of Libyan public funds and passive corruption.

He was released on Wednesday, March 21 following two days of questioning over the financing of his 2007 campaign.

Sarkozy, 63, has denied wrongdoing.

He says his Libyan accusers are seeking vengeance for his decision to deploy French warplanes during the uprising which overthrew Gaddafi in 2011.

The centre-right politician failed in his bid to return to power in 2012, losing to socialist François Hollande.

In 2013, France opened an investigation into allegations that Sarkozy's campaign had benefited from millions of euros of illicit funds from Gaddafi.

One of Sarkozy's former ministers and a close ally, Brice Hortefeux, was also reportedly questioned by police on Tuesday.