PARIS - French prosecutors have launched a formal investigation into whether Malaysian Prime Minister Najib Razak was paid bribes over a long­contentious US$1.2 billion (S$1.69 billion) arms deal when he was defence minister.

A judge will probe whether Bernard Baiocco, former president of French defence group Thales International Asia, paid illegal kickbacks to Datuk Seri Najib, through an associate of the prime minister, to win a 2002 contract for two submarines, the Financial Times (FT) reported, citi ng people close to the case.

The Paris prosecutor's office said Baiocco had been placed under formal investigation on suspicion of "bribery of foreign public officials" and "complicity in misuse of corporate assets", according to the FT.

This comes after Agence France-Presse (AFP) reported that Baiocco was indicted on Dec 15 last year for paying commissions to Mr Abdul Razak Baginda, a Malaysian political analyst who is a close friend of Mr Najib.

But Mr Abdul Razak told the FT that while he was paid about 30 mllion euros (S$47 million) to consult on the Scorpene submarine deal, the money was not used to bribe officials.

"It was a legitimate agreement. I did my job and I got paid for it," he was quoted as saying. "And I never paid any official."

Mr Abdul Razak, who is now the director of British-based charity Islamic Peace Foundation, also said he had never been a paid adviser to Mr Najib, who was defence minister at the time.

He said he had written speeches for Mr Najib and had accompanied him on foreign trips, but had "rarely" talked to him about the submarine deal "over a cup of tea", according to the FT report.

The inquiry relates to the sale of two Scorpene­class attack submarines from a joint venture between Thales International Asia and defence company DCN, now called DCNS.

While the submarine deal was being negotiated, Mr Abdul Razak was the lover of 28-year-old Mongolian interpreter Altantuya Shaariibuu, who was murdered in 2006. Two of Mr Najib's bodyguards were later found guilty of murder.

Civil society groups and Mr Najib's opponents alleged a link between the killing of Ms Altantuya and the submarine deal.

Both Mr Najib and Mr Abdul Razak, who was cleared of involvement in Ms Altantuya's murder at a 2008 trial, have denied there is any connection.

The French arms deal generated intrigue in Malaysia where it has been the subject of rumours and speculation in social media during Mr Najib's seven-year rule.

French prosecutors declined to name the Malaysian officials suspected of being bribed, said the FT report. But three people close to the investigation told the newspaper that judicial documents named Mr Najib and Mr Abdul Razak.

The FT quoted a Malaysian government spokesman as dismissing the allegations against Mr Najib as "baseless smears for political gain".

The spokesman added that the Malaysian leader had not benefited from any payments linked to the contract. There had also never been any communication from the French judiciary to Mr Najib, he said.

"There is absolutely no evidence of any wrongdoing and there never will be," he added.

Baiocco's lawyer Jean­Yves Le Borgne claimed the French prosecutors were attempting "judicial acrobatics" in trying to prove the cash found its way to Mr Najib or any government official.

"There was no corruption. The money paid by my client's company to Mr (Abdul Razak) Baginda was for lobbying," he told FT.

"They (the prosecutors) suspect the minister received some money but they have never had anything to prove that."

The French probe adds to the international investigations on Mr Najib from a separate scandal swirling around Malaysia's state investor 1Malaysia Development Berhad (1MDB) over alleged misappropriation of money.