Lagarde, who was questioned this week by magistrates in Paris for a fourth time under her existing status as a witness in the long-running saga, said she would contest the decision.
“I have asked my lawyer to use all recourse against this decision which I consider to be completely unfounded,” she said on BFMTV. “I am returning to work in Washington this afternoon.”
Under French law, magistrates place someone under formal investigation when they believe there are indications of wrongdoing, but that does not always lead to a trial.
Lagarde’s lawyer, Yves Repiquet, told Reuters he would appeal the appeal the magistrates’ decision and so the matter would not prevent Lagarde from doing her job at the head of the International Monetary Fund in the meantime.
The inquiry relates to allegations tycoon Bernard Tapie, a supporter of conservative ex-president Nicolas Sarkozy, was improperly awarded €403m in an arbitration to settle a dispute with now defunct, state-owned bank Credit Lyonnais.
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 Sarkozy’s finance minister.
In previous rounds of questioning, Lagarde has not recognised as her own the pre-printed signature to sign off on a document facilitating the payment, Repiquet told Reuters by telephone. However Richard has stated that Lagarde was fully briefed on the matter.
The offence of negligence by a person charged with public responsibility in France carries a maximum penalty of one year’s imprisonment and a €15,000 fine.
Lagarde was a star in Sarkozy’s cabinet and well-respected by peers, pushing through many of the high-profile initiatives in France’s presidency of the G20 group of nations.
She has been managing director of the IMF since 2011 after her predecessor, Frenchman Dominique Strauss-Kahn, resigned over sexual assault charges that were later dropped.