Villepin has denied any wrongdoing and returned home from a holiday late on Thursday to be on hand when judges searched his office in central Paris on Friday.

"I have just been through moments which, as you can imagine, are not very pleasant but I know the truth will emerge," French media quoted Villepin as saying on Friday evening.

Anonymous tip-off

The scandal began in 2004 when anonymous letters were sent to an examining magistrate alleging Sarkozy and a group of other senior politicians held accounts in Clearstream, a financial clearing house in Luxembourg.

The money was said to be linked to the sale of frigates to Taiwan in 1991, but the accounts proved untrue.
 
Judicial sources said that deleted files retrieved from the computer of an intelligence officer suggested Villepin himself had encouraged the anonymous tip-off to the magistrate.

The sources have said Villepin could be placed under formal investigation for complicity in false accusations.

Such a move would not imply guilt, but would be unprecedented against a former prime minister in modern French history.

Official complaint

Sarkozy lodged an official complaint with magistrates last year, saying he had been the victim of a smear campaign, but did not give any names in his deposition.

Villepin has repeatedly denied allegations that he tried to stoke the scandal and was questioned by magistrates for 17 hours in December.

He has said he ordered a routine check of the Clearstream accounts when the bank details first came to light and immediately dropped the probe when it became clear that all the documents had been falsified.

Sarkozy says he was not informed about the allegations until months later and knew nothing about Villepin's investigation, despite the fact that they were serving in the same government.