Swiss prosecutors say they are investigating Sepp Blatter, the head of football’s world governing body Fifa, on suspicion of criminal mismanagement.
The attorney general’s office said he was suspected of signing a contract that was “unfavourable to Fifa” and making a “disloyal payment” to European football chief Michel Platini.
Mr Blatter was being questioned, and his office was searched, it added.
The 79-year-old, who has run Fifa since 1998, has always denied any wrongdoing.
Fifa, which has been hit by a string of corruption allegations in recent years, said it was co-operating with the investigation.
‘Disloyal payment’
“Swiss criminal proceedings against the president of Fifa, Mr Joseph Blatter, have been opened… on suspicion of criminal mismanagement… and – alternatively – misappropriation,” the Swiss attorney general’s office said in a statement.
It said Mr Blatter was suspected of signing a contract with former Caribbean football chief Jack Warner in 2005 that was “unfavourable to Fifa” and in doing so “violated his fiduciary duties and acted against the interest of Fifa…”
The contract they mention is thought to refer to a TV rights deal agreed between Fifa and Mr Warner’s organisation Concacaf which, according to an investigation by a Swiss broadcaster earlier this month, allegedly resulted in a multi-million pound profit for Mr Warner’s own company.
Fifa owns the TV rights to the World Cup and sells them to regional federations which then sell them on to broadcasters.
Mr Blatter’s lawyer, Richard Cullen, said he was confident the inquiry would clear Mr Blatter of any wrongdoing.
“We are confident that when the Swiss authorities have a chance to review the documents and the evidence, they will see that the contract was properly prepared and negotiated by the appropriate staff members of Fifa who were routinely responsible for such contracts, and certainly no mismanagement occurred,” he said.
According to the Swiss attorney general, Mr Blatter is also suspected of making a “disloyal payment” of two million Swiss francs ($2m; £1.3m) in 2011 to Mr Platini, the statement said.
It said the payment was “at the expense of Fifa, which was allegedly made for work performed between January 1999 and June 2002”.
Mr Blatter is due to step down in February and Mr Platini is widely expected to replace him.
Mr Platini, for his part, issued a statement on Friday evening, saying the money he received from Mr Blatter “relates to work which I carried out under a contract with Fifa” and he had clarified matters with the authorities.
Analysis by BBC sports editor Dan Roan
Ever since May, when the arrest of senior Fifa officials in dawn raids in Zurich plunged world football’s governing body into crisis, the sport has wondered whether the scandal would lead directly to President Sepp Blatter.
On Friday – finally – it did. On the one hand, perhaps it should come as no surprise.
After all, Mr Blatter has been at the helm of Fifa for 17 years. He’s become symbolic of the many corruption allegations that have blighted the body and some thought it a matter of time until investigations by the FBI and Swiss criminal authorities would implicate him.
In fact, such was the perceived threat facing Mr Blatter that his lawyers advised him not to travel abroad.
However, this is still a stunning development, with criminal proceedings opened against the man who still runs world football.
Although Mr Blatter announced he was stepping down back in June, he decided to hang on as president until February in a bid to influence the choice of his successor and reforms. That now seems highly unlikely, with calls for him to resign immediately bound to intensify.
Uefa supremo Michel Platini – the favourite to replace Blatter – has also been dragged into the scandal, and many will argue that he cannot now be the answer to the organisation’s battered credibility.
In fact, critics will insist that so tarnished has Fifa become, the time has come for it to be run by an external company.
And inevitably this latest development will raise more questions over the process that led to Russia and Qatar becoming hosts of the World Cup.
Sport’s biggest ever scandal has just got bigger.
In May, Swiss authorities arrested seven Fifa officials in Zurich at the request of the US. One, Fifa Vice-President Jeffrey Webb, has already been extradited.
The US then unveiled indictments against seven other people in their corruption case.
Nine of those accused were high-ranking current or former Fifa officials. They include Jack Warner who is currently fighting extradition from Trinidad.
The Swiss opened their own investigation into Fifa hours after the initial arrests.
The BBC’s Imogen Foulkes in Geneva says the timing of the announcement of the investigation into Sepp Blatter was no accident, coming as it did while the world’s media were gathered in Zurich for a Fifa news conference.
She says that ever since the first arrests in May, the Swiss attorney general’s office has told her it is serious about investigating Fifa, and proving to a sceptical world that Switzerland can get tough on financial corruption.
Mr Blatter won a fifth consecutive Fifa presidential election on 29 May but, following claims of corruption, announced his decision to step down on 2 June. He is due to finish his term at a Fifa extraordinary congress on 26 February.
Fifa cancelled its news conference on Friday only minutes before it was due to start.
Mr Blatter would have been speaking in public for the first time since general secretary Jerome Valcke was suspended last week amid allegations regarding ticket sales at the 2014 World Cup.
Mr Valcke, who describes the allegations as “fabricated”, has been released from his duties pending an investigation.
