Nicolas Sarkozy aides Claude Guéant and Michel Gaudin arrested in connection with alleged embezzlement of police funds

They were arrested as part of an investigation into an undeclared €10,000 in cash paid monthly to Mr Guéant when he ran Mr Sarkozy's office

The tangled mesh of legal investigations surrounding Nicolas Sarkozy and his clan tightened on Tuesday with the arrest of two of the former president's closest associates.

A former interior minister and a former Paris police chief were in custody on Tuesday night suspected of involvement in the embezzlement of police funds.

One of the two men, Michel Gaudin, 65, ex-prefect of the Paris police, is now head of former President Sarkozy's  private office. The other man, Claude Guéant, 68, was Mr Sarkozy's alter-ego for a decade, rising from his right-hand man in the interior ministry to become interior minister himself.

They were arrested by appointment on Tuesday morning as part of an investigation into an undeclared €10,000 in cash paid monthly to Mr Guéant from 2002 to 2004 when he ran Mr Sarkozy's private office in the interior ministry (equivalent of the Home Office).

The money came from a fund which was supposed to be used for special police surveillance and investigation operations. Mr Guéant initially admitted that he had received the money but said that this was part of a long-standing tradition of under-the-counter cash bonuses for senior officials in ministerial offices. His friends later claimed that the money had been paid as bonuses to police officers in Mr Sarkozy's personal security team.

Neither man has yet been formally accused of any offence but they could be "mis en examen" - or placed under formal investigation - at the end of up to two days of questioning by a police unit which deals with corruption and tax avoidance.

The arrests will infuriate Mr Sarkozy, who has complained in private that both he and his closest associates have been persecuted by the French police and judicial  system since he lost power 20 months ago. Mr Guéant's name has come up in half a dozen separate investigations into allegations of illegal political fund-raising, misuse of power and the undeclared sale of art-works.

The potential allegations against Mr Guéant of tax-avoidance or embezzlement in the interior ministry a decade ago could be especially embarrassing for Mr Sarkozy. The former President's rise to power was based on his carefully constructed image  as a man tough on crime while he was minister for the interior under President Jacques Chirac in 2002-4.

Police are now investigating whether Mr Sarkozy's closest aide at the time was taking illegal, cash bonuses of up to €120,000 a year - almost double his official salary - from funds which were supposed to be used for crime-fighting.

Mr Gaudin's alleged role remained unclear on Tuesday night. After hitching his career to the rise of Mr Sarkozy, he was made prefect (chief) of the Paris police soon after his mentor's election to the presidency in May 2007 and dismissed just after Francois Hollande's election in May 2012. He has since become the head of Mr Sarkozy's post-presidential private office. 

The allegations arise from documents found at Mr Guéant's home and office during police searches last year connected with the other investigations against him. Asked to explain several large cash purchases in this period, he said that the money came from his bonuses at the interior ministry.

Such cash bonuses, common for decades, were abolished by President Chirac and the Socialist prime minister, Lionel Jospin in 2002. In a radio interview in May this year, Mr Guéant said he made the purchases with “bonuses paid in cash. They weren’t declared (to the tax authoritoies) because that was the custom at the time. Now, after the event,  it is said to be irregular and the rules have been changed.”