Christine Lagarde, the chief of the International Monetary Fund (IMF), has been placed under formal investigation in a corruption probe that dates back to her days as France's finance minister.
The inquiry relates to allegations that tycoon Bernard Tapie, a supporter of Conservative former president Nicolas Sarkozy, was improperly awarded $531m in arbitration to settle a dispute with the now defunct, state-owned bank Credit Lyonnais.
Largarde's lawyer Yves Repiquet told the Reuters news agency that Lagarde was this week questioned by magistrates in Paris for a fourth time under her existing status as a witness in the long-running saga.
"We are appealing it," Repiquet said by telephone, adding that his client, who was due to return to IMF headquarters in Washington later on Wednesday, had no plans to resign.
In a statement earlier in the day, Lagarde said the decision was "without basis".
"After three years of proceedings, dozens of hours of questioning, the court found from the evidence that I committed no offense, and the only allegation is that I was not sufficiently vigilant," she said.
Indications of wrongdoing
In French law, magistrates place someone under official investigation when they believe there are indications of wrongdoing, but that does not always lead to a trial.
The inquiry has already embroiled several of Sarkozy's cabinet members and France Telecom chief executive Stephane Richard, who was an aide to Lagarde when she was finance minister.
In previous rounds of questioning, Lagarde accused Richard of having used her pre-printed signature to sign off on a document facilitating the payment, local media has said.
However, Richard has stated that Lagarde was fully briefed on the matter.
Investigators are trying to determine whether Tapie's political connections played a role in the government's decision to resort to arbitration that won him the huge pay-out.
Critics have said the 2008 deal was too generous, and was symptomatic of the cozy relationship between money and power in France.
Al Jazeera's Jonah Hull, reporting from Paris, said Lgarde is going to report back to the board of the IMF in Washington and explain her situation.
"Up to now, she's been supported by the board. We're told that last year they discussed all possible outcomes of this investigation and decided that she was fit to continue to lead," he said.
"Up until today, she's only been considered a witness in this case. But now she's under formal investigation."
The offence of negligence by a person charged with public responsibility in France carries a maximum penalty of one year's imprisonment and a $20,000 fine.