Former French president Nicolas Sarkozy has been taken into police custody and questioned as to whether late Libyan dictator Moamar Gaddafi helped finance his 2007 election campaign.

Judicial sources said Mr Sarkozy, 63, was held in custody in Nanterre, a suburb in western Paris.

Mr Sarkozy has been under investigation since 2013 for allegedly receiving millions of dollars in illegal financing from the regime of the late leader.

The allegations came from a French-Lebanese businessman, Ziad Takieddine, and some former Gaddafi regime officials.

It is the second major judicial investigation to fall on Mr Sarkozy, 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 Mr Sarkozy could not immediately be reached for comment.

The former president has dismissed the Libya allegations as "grotesque" and a "crude manipulation".

Investigators in France can hold people for questioning for up to 48 hours before either releasing them or sending them before magistrates, who decide whether they have grounds for turning a preliminary inquiry into a full investigation.

ABC/Reuters