Former French budget minister Eric Woerth will be formally investigated over alleged influence peddling, said the public prosecutor, part of a wider judicial inquiry into billionaire L'Oreal heiress Liliane Bettencourt and political financing.

Woerth is suspected of using his potion to secure a national merit award - the Legion d'Honneur - for the man who managed Bettencourt's fortune, after Woerth's wife was hired by the family's holding company.

The Bettencourt affair ballooned into a political scandal in the summer of 2010 after allegations Woerth had obtained illegal financing for the ruling UMP party from the heiress.

Woerth, who was UMP party treasurer during the period in question, left President Nicolas Sarkozy's government at the end of 2010 after months of fending off accusations of influence peddling. He has denied any wrongdoing.

The announcement by a public prosecutor late on Wednesday that he was being put under official investigation opens a new phase in the slowburning judicial inquiry.

In France, such an investigation does not automatically lead to charges but suggests investigators believe their preliminary findings have given them reason to consider Woerth a suspect.

That said, the inquiry did not cite, as some had expected, the former minister was being investigated on suspicion of having obtaining illegal political party financing.

Sarkozy faces an uphill battle for re-election in April and trails Socialist front-runner Francois Hollande in polls.

Sarkozy's office in late August denied allegations published in a national newspaper he was handed cash by Bettencourt for his 2007 election campaign.

Bettencourt, France's richest woman, is the largest shareholder in cosmetics group L'Oreal.

(Reporting By John Irish; Editing by Sophie Hares)