Dec. 29, 2010  -- Defeated Tea Party candidate Christine O'Donnell, who ran for vice president Joe Biden's former Senate seat, is reportedly under federal investigation for using campaign funds for personal expenses, the Associated Press reports.

The criminal probe is being conducted by two federal prosecutors and two FBI agents, an anonymous source told the AP. The matter has not yet been referred to a grand jury.

Spokespersons with the FBI in Washington and the Delaware Attorney General's office declined to comment.

But O'Donnell campaign spokesman Matt Moran told ABC News the wire report was the first he had heard of an alleged investigation.

"The anonymous source seems politically-motivated and may well be tied to the ultra-liberal, George Soros-financed, former Sen. Biden staffer-run CREW [Citizens for Responsibility and Ethics in Washington] complaint," Moran said.

The left-leaning watchdog group filed complaints with the Delaware U.S. Attorney's office and Federal Election Commission in September alleging the Republican candidate misused campaign funds.

"These charges are already being addressed with the FEC," he said. "We are confident that they will be resolved in the New Year, and put an end to the frivolous sensationalism regarding this matter."

Moran called the allegations surrounding O'Donnell's campaign finances unsubstantiated and "old news," dating primarily to her 2008 campaign for then-Sen. Joe Biden's seat. The issue first surfaced during O'Donnell's repeat bid for the Senate earlier this year.

Former O'Donnell campaign manager Kristin Murray said in a robocall taped for the Delaware Republican Party during the primary that O'Donnell used 2008 campaign funds for personal reasons.

"As O'Donnell's manager, I found out she was living on campaign donations; using them for rent and personal expenses, while leaving her workers unpaid and piling up thousands in debt," she said.

In a statement Wednesday, O'Donnell denied the allegations and called them politically-motivated smears.

"Given that the King of the Delaware Political Establishment just so happens to be the Vice President of the most liberal Presidential administration in U.S. history, it is no surprise that misuse and abuse of the FBI would not be off the table," she said.

O'Donnell Plans Politically Active Future

O'Donnell, a former marketing executive and conservative pundit, has failed in three bids for the same U.S. Senate seat, losing most recently to Democrat Chris Coons.

But she has vowed to remain a prominent conservative voice in national political discourse.

Moran said O'Donnell is starting a Political Action Committee and developing "strategic partnerships."

During a recent appearance on the Tonight Show, O'Donnell also hinted at a forthcoming book deal and possibly an appearance on reality TV.

"I would like to do something like a watchdog-type show," said O'Donnell, who also did not rule out another run for public office.

O'Donnell's penchant for TV talk show appearances during the 1990s became a popular fixation during the 2010 campaign.

One of the most remarkable moments of the election season was O'Donnell's television ad that included the phrase, "I am not a witch." The ad was meant to counter reports that she had dabbled in witchcraft when she was younger.

ABC News' George Sanchez contributed to this report.