He was named as an accused in a criminal court hearing on Monday and formal charges are expected when the court reconvenes on July 26.
If convicted, Fonseka faces a possible 20-year prison sentence.
Vijitha Herath, an opposition legislator who is part of Fonseka's Democratic National Alliance coalition party, said: "This is a political vendetta against a war hero."
Fonseka is currently in military custody, facing two courts martial for allegedly dabbling in politics while in uniform and illegally awarding contracts to a company where his son-in-law had an interest.
The government pressed 21 new charges against him on Monday in connection with the irregular contracts case.
Fonseka led the Sri Lankan army to a spectacular victory against the separatist Tamil Tigers in May last year, ending the island's 37-year ethnic conflict.
But he fell out with Rajapaksa afterwards over who should take credit for the military success.