Special counsel Robert Mueller, who is in charge of an FBI probe into Russia's role in last year's presidential election, is interviewing senior intelligence officials to see if President Donald Trump tried to obstruct justice, US officials said.
The officials reportedly told Washington Post that investigators were looking for evidence of possible financial crimes by Trump associates.
The report drew a sharp response from the President early yesterday.
"They made up a phony collusion with the Russians story, found zero proof, so now they go for obstruction of justice on the phony story. Nice," Mr Trump said on Twitter.
"You are witnessing the single greatest WITCH HUNT in American political history - led by some very bad and conflicted people!" he said in a second tweet.
Earlier, when asked by the media, a spokesman for Mr Trump's attorney Marc Kasowitz, Mr Mark Corallo, did not deny the substance of the report but slammed the Federal Bureau of Investigation (FBI) leak of information as "outrageous, inexcusable and illegal".
The National Security Agency (NSA) said it would "fully cooperate with the special counsel".
SOME REPUBLICANS UNEASY
The gap between Trump and some Republican senators is widening.
POLITICAL SCIENCE PROFESSOR CHARLES BULLOCK of Georgia University.
POTENTIAL TURNING POINT
The President, less than five months into his term in office, is being investigated for obstruction of justice. That's a big milestone.
POLITICAL ANALYST NATE SILVER, on the fivethirtyeight.com website.
Legal analysts called Mr Mueller's move a logical one, but said obstruction of justice is difficult to prove unless the intent is clear and specific.
The widened probe follows sacked FBI director James Comey's testimony last week when he told the Senate Intelligence Committee: "It's my judgment that I was fired because of the Russia investigation."
He added: "I was fired in some way to change, or the endeavour was to change, the way the Russia investigation was being conducted."
Asked if that constituted obstruction of justice, he said: "That's a conclusion I'm sure the special counsel will work towards."
Mr Comey also detailed how Mr Trump had asked him to help "lift the cloud" of alleged Russian interference in last year's election that swept him to power.
As for the probe into his former national security adviser Michael Flynn, he said Mr Trump told him: "I hope you can let this go."
While Mr Comey did not act on it, he had taken it as a "direction", he had told the committee.
Former prosecutor Ken Starr told CNN: "Comey said even though the word was hope, he took it as a directive, it became an interpretation. It (obstruction of justice) is a hard case to make. The intent is important. The literal language was hope, and the director didn't act on it."
Mr Trump denied telling Mr Comey to drop the Flynn investigation or asking for the FBI chief's "loyalty" and said he was "100 per cent" willing to testify under oath to that.
Earlier this week, reports cited former Speaker Newt Gingrich and Mr Christopher Ruddy, a Trump friend, as saying the President was considering firing Mr Mueller - a move most analysts say would backfire.
Still, a probe into the President himself marks a potential turning point. Said political analyst Nate Silver on the fivethirtyeight.com website: "The President, less than five months into his term in office, is being investigated for obstruction of justice. That's a big milestone."
He said there are two clear roads to impeachment: either Mr Mueller finds Mr Trump has obstructed justice or Mr Trump fires Mr Mueller.
Either way, the decision would lie with Congress, with Republicans still controlling both Houses. While there may be unease among some Republicans, there is no sign of a real split with Mr Trump.
"The gap between Trump and some Republican senators is widening," political science professor Charles Bullock of Georgia University said. Senators have broad constituencies and are sensing dissatisfaction in their states, he said.
On the other hand, representatives have more homogeneous districts still supportive of Mr Trump's agenda, so "fewer of them feel pressure to keep away from Trump".