Britain's Electoral Commission launched a formal investigation into the funding of renovations to Prime Minister Boris Johnson's Downing Street flat.
The watchdog said on Wednesday that there "were reasonable grounds to suspect that an offence or offences may have occurred".
The inquiry was announced an hour before Mr Johnson faced MPs at an ill-tempered Prime Minister's Questions during which he was challenged over who payed for the renovations.
He was also forced to explain a reported remark that he would rather "let bodies pile high" than order another Covid-19 lockdown.
Mr Johnson repeatedly dodged Labour Party leader Sir Keir Starmer's questions over who initially paid for the renovations.
"I have covered the costs and I think most people will find it absolutely bizarre that he is focusing on this issue," Mr Johnson said.
"This is a government that gets on delivering people's priorities while he continues to raise issues most people find irrelevant to their concerns."
Asked if he believed any rules were broken in relation to the renovations, Mr Johnson replied: "No, I don't.
"What I believe has been strained to breaking point is the credulity of the public," he said. "He goes on and on about wallpaper when I’ve told him umpteen times now I paid for it."
Mr Johnson denied telling a Cabinet meeting on Covid-19 in October he would rather "let the bodies pile high in their thousands" than order another lockdown.
"If [Mr Starmer] is going to repeat allegations like that, he should come to the house and substantiate them," he said.
"They were very bitter, very difficult decisions because no prime minister wants to put this country into lockdown."
Mr Starmer gave Mr Johnson the nickname "Major Sleaze" after a series of recent scandals, an apparent riposte to the "Captain Hindsight" moniker Mr Johnson used for the Labour leader.
“Dodgy contracts, jobs for their mates and cash for access – and who is at the heart of it? The prime minister, Major Sleaze sitting there," Mr Starmer said.
Earlier, the Electoral Commission said it had been in contact with the Conservative Party on the issue of the flat since late March.
"We are now satisfied that there are reasonable grounds to suspect that an offence or offences may have occurred," the Commission said.
"We will therefore continue this work as a formal investigation to establish whether this is the case."
The body said it was examining whether funding of the works fell foul of rules on donations to political parties.
"The investigation will determine whether any transactions relating to the works at 11 Downing Street fall within the regime regulated by the Commission and whether such funding was reported as required," it said.
"We will provide an update once the investigation is complete."
Asked last month about the refurbishment, Mr Johnson's spokeswoman said all donations, gifts and benefits were properly declared, and that no Conservative Party funds were used to pay for the refurbishment.
Mr Johnson has a taxpayer-funded £30,000 ($42,000) allowance each year for maintaining and furnishing his official residence, but any more must be met by the prime minister.
Ministers said Mr Johnson paid for the work himself, but it is unclear when he paid, and whether the refurbishment, reported to have cost £200,000, was financed initially by a loan. Under political financing rules, Mr Johnson would be required to declare this.
The opposition Labour Party demanded an explanation.
Its deputy leader Angela Rayner wrote to Simon Case, the head of the civil service, asking him to investigate comments on the matter by Mr Johnson's press secretary this year.
Allegra Stratton, a former BBC journalist, was the prime minister's press secretary from October until last week.
Dominic Cummings, who was Mr Johnson's key adviser on the Brexit campaign and helped him to win the general election in 2019 before an acrimonious split last year, said Mr Johnson wanted donors to pay for the renovation secretly.
Mr Cummings said he told the prime minister such plans were "unethical, foolish and possibly illegal".
Asked if Mr Johnson received a loan from the Conservative Party for the refurbishment, Transport Secretary Grant Shapps said on Wednesday: "The prime minister has already paid for it."