France's highest appeals court has ruled International Monetary Fund chief Christine Lagarde must stand trial for her role in a 400 million euros state payout in 2008 to businessman Bernard Tapie.
She was French finance minister at the time when she signed off on the decision to seek an extremely rare out-of-court settlement in a dispute between the state and Mr Tapie, costing tax-payers dearly.
The court rejected her appeal against a judge's order in December for her to stand trial at the Cour de Justice de la Republique, a special court that tries ministers for crimes in office.
The trial will be only be the fifth in the history of the tribunal, which is made up of three judges and six lawmakers from both the lower and upper houses of parliament.
Her case may go to trial before the before the end of the year if a date can be found that suits all of the judges and lawmakers, a judicial source said.
Her lawyer Patrick Maisonneuve expressed regret over the decision and said he was convinced that the trial would show she was innocent.
IMF spokesman Gerry Rice said that its executive board had been briefed on the matter and continued to have confidence in Ms Lagarde's capacity to carry out her functions.
Ms Lagarde is accused of negligence with the result that public funds were misused by improperly approving the decision to allow an out-of-court arbitration in the dispute with Mr Tapie, a supporter of conservative former president Nicolas Sarkozy.
The arbitration judges later ruled in Mr Tapie's favour and ordered the state payout to him, but appeals courts have since thrown out that settlement decision.
A Paris appeals court has ordered Mr Tapie to reimburse the state, but the businessman has lodged an appeal, which is still pending.
The case goes back to when Mr Tapie sued the state for compensation after selling his stake in sports company Adidas to Credit Lyonnais in 1993. He claimed the bank had defrauded him after it later resold his stake for a much higher sum.
The judge seeking the trial had argued in December that Ms Lagarde's decision to allow an out-of-court settlement amounted to more than an unfortunate case of carelessness, a judicial source said.
Despite the case looming over her, Ms Lagarde was appointed in January for a second five-year term as managing director of the International Monetary Fund.
Ms Lagarde has had a high-flying career, first as a top corporate lawyer in the United States, then as a cabinet minister and most recently as managing director at the IMF.
At the Fund, she has won praise for persuading the US Congress to approve a landmark reform programme that shifted more voting power to China and other key emerging market countries and has generally been considered a skilful negotiator.
As France's finance minister from 2007 to 2011 Ms Lagarde played a key role in Europe's response to the global financial crisis.