Staten Island Rep. Michael Grimm will be indicted following a two-year federal investigation of his business dealings and fund-raising activities, his attorney said Friday.

The charges against the former FBI agent and Marine are being handled by the US Attorney Loretta Lynch in Brooklyn, who has scrutinized more than $500,000 in campaign contributions the two-term GOP congressman raised with the help of an Israeli citizen named Ofer Biton.

But a law-enforcement source said the charges will be related to Grimm’s “shady restaurant dealings.”

Before he went to Washington in 2010, Grimm was a partner in an Upper East Side eatery called Healthalicious with Bennett Orfaly, who had ties to the Gambino crime family.

The congressman’s lawyer claimed the feds were conducting a witch hunt.

“After more than two years of investigation plagued by malicious leaks, violations of grand-jury secrecy, and strong-arm tactics, the US Attorney’s Office has disclosed its intent to file criminal charges against Congressman Grimm,” lawyer William McGinley said in a statement late Friday.

“We are disappointed by the government’s decision, but hardly surprised. From the beginning, the government has pursued a politically driven vendetta against Congressman Grimm and not an independent search for the truth. Congressman Grimm asserts his innocence of any wrongdoing.”

Federal agents have been looking into Grimm for at least two years, including his link to Biton, an Israeli citizen who pleaded guilty to a visa violation last year.

Grimm relied on Biton’s connections to raise more than $500,000 from followers of a mystical New York City rabbi named Yoshiyahu Yosef Pinto. Many of those donations were suspected to be in violation of campaign finance laws.

The timing of the impending indictment could not have come at a worse time for Republicans.

It’s unlikely that Grimm’s criminal case will be resolved before the November election, so the GOP could be stuck with a damaged incumbent on the ballot.

Staten Island Republican chairman John Antoniello declined comment on whether he would try to replace Grimm as the party’s candidate.

Grimm was already facing a strong challenge from former Brooklyn Democratic Councilman Domenic Recchia. The district covers south Brooklyn as well as Staten Island.

“They are drinking champagne at Recchia’s HQ,” a Democratic source said.