L'Oreal heiress Liliane Bettencourt's daughter won control over her 88-year-old mother's business affairs Monday almost two years after she first asked to take over on the grounds her mother had been exploited.

The decision was made on the basis of a medical examination, carried out following a surprise visit to the elderly billionaire's home in June, which concluded she was suffering from a form of dementia.

Liliane Bettencourt's wealth and income, including her 30 percent stake in global cosmetics company L'Oreal -- will now be managed by her daughter Francoise Meyers-Bettencourt and her children. Jean-Victor Meyers, Bettencourt's grandson, will be responsible for her health and physical well-being.

It is a decision that is deeply disappointing that I will find hard to inform Mrs Bettencourt about, the heiress's lawyer said, adding he planned to lodge an appeal.

The Bettencourt affair ballooned into a political scandal after allegations that then budget minister and former party treasurer Eric Woerth obtained illegal financing for the ruling UMP party from the heiress.

Woerth left the government at the end of last year after months of fending off accusations of influence peddling. He strongly denied any wrong doing.

The scandal resurfaced Monday when the head of France's intelligence services, Bernard Squarcini, was placed under investigation for allegedly tapping the phones of a Le Monde journalist who wrote an article in 2010 questioning Woerth and his involvement in the Bettencourt affair.

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

Sarkozy, whose popularity is mired near record lows, faces an uphill battle for re-election in April.

FRANCE'S RICHEST WOMAN

With a fortune estimated at 17 billion euros ($23.6 billion), Liliane Bettencourt is the wealthiest woman in France and the 15th richest person in the world, according to the Forbes rich list.

Francoise Meyers-Bettencourt and her children welcomed Monday's ruling, saying they had always acted to protect Bettencourt's interests and were immensely relieved the court had finally agreed to their demands.

They also said the family holding company Tethys would continue to manage the family's voting rights in L'Oreal. Separately, Swiss food group Nestle said the court decision would in no way affect a shareholder agreement between the two groups.

Nestle, which owns 31 percent of L'Oreal, struck a deal with the Bettencourts in 2004, giving each party first refusal for their L'Oreal shares for 10 years.

Moreover, neither party can increase its L'Oreal stake during Liliane Bettencourt's lifetime and for six months after her death, a spokesperson for Nestle said in a statement.

In December, Bettencourt declared a truce with her daughter after Meyers-Bettencourt withdrew her request to have her mother placed under the supervision of a guardian, and the two made a show of unity.

However, the spat reignited over the summer when Bettencourt said her daughter needed to seek psychological help. Doctors had advised appointing a guardian in June, but that request was dismissed on a technicality after an appeals court said the request was invalid.

Le Monde said Monday the medical examination in June found Bettencourt was unable to answer various test questions, adding that she was suffering from anosognosia, a condition where a person is unaware of his or her disability.

In an interview in Journal du Dimanche Sunday, the wealthy heiress showed fighting spirit, threatening to leave the country if she were placed under guardianship.

The Bettencourt affair initially centred on Francois-Marie Banier, a celebrity photographer whom Meyers-Bettencourt accused of swindling her mother to the tune of up to a billion euros.

Although charges against Banier have been dropped, investigations are still ongoing into the illegal funding claims.