The investigation was opened Monday after President Nicolas Sarkozy filed a formal complaint against French website Mediapart.
Sarkozy has vigorously denied the allegation, which was first levied by one of Gadhafi's sons last year as France was pressing for international airstrikes against Gadhafi's forces to end a crackdown on rebels.
Although no evidence has emerged that the funding ever took place, Mediapart reported Saturday it had obtained a 2006 Libyan document signed by Gadhafi's then-intelligence chief Moussa Koussa with an offer by the regime to spend €50 million ($66 million) on Sarkozy's first presidential bid.
Sarkozy's complaint accused Mediapart of "forgery" and "publication of false news," according to the prosecutor's office. The complaint named Edwy Plenel, the site's executive editor, and two other journalists. After the investigation, the prosecutor will decide whether to file charges.
"Those who lie, those who tell falsehoods should be condemned by the justice system," Sarkozy told France 2 television earlier Monday.
Sarkozy, who is trailing challenger Socialist Francois Hollande in the polls for Sunday's presidential runoff, also accused Mediapart of being a mouthpiece for the left.
Francois Bonnet, the editorial director for the site, rejected that accusation.
"It's simply grotesque and defamatory," he said.
Hollande also dismissed the claim, saying he had no link to the site and noting that it sometimes goes after politicians on the left.
"(Do) I need newspapers to bring up scandals? You think that's how I plan to win the presidential election?" Hollande asked on Europe-1 radio.