Boris Johnson has been referred to the Independent Office for Police Conduct (IOPC) to assess whether he should be investigated for the criminal offence of misconduct in public office while he was mayor of London.
The Greater London Authority (GLA) said in a statement the authority's monitoring officer had recorded a "conduct matter" against the Prime Minister over allegations the businesswoman Jennifer Arcuri received favourable treatment because of her friendship with him.
"A 'conduct matter' exists where there is information that indicates that a criminal offence may have been committed," the statement said.
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"It does not mean that this is proved in any way. The IOPC will now consider if it is necessary for the matter to be investigated."
The issue has been referred to the IOPC, which deals with complaints against police forces in England and Wales, because Mr Johnson at the time held the post equivalent to a police and crime commissioner.
Mr Johnson, who denies any wrongdoing, has previously said that he will co-operate with any investigation into his links with Ms Arcuri by the London Assembly.
The Prime Minister will comply with a London Assembly order to explain his links to Ms Arcuri, but has said his former colleagues are "barking up the wrong tree".
Conservative Party chairman James Cleverly had previously hinted the Prime Minister could refuse to give evidence to City Hall regarding allegations he favoured his friend for business grants and trade missions while London mayor.
But Mr Johnson has since made clear he will play ball with the investigation.
"I will co-operate with my old friends on the Assembly," he said.
"But on this particular matter, I think they are barking up the wrong tree."
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Members of the Assembly on Tuesday gave the PM a two-week deadline to provide "details and a timeline of all contact with Jennifer Arcuri including social, personal and professional during his period of office as mayor of London".
Refusing to comply could have seen the Conservative leader formally summoned by City Hall and in breach of the law.
A three-month prison sentence can be slapped on those who disobey a summons from the Assembly.
The Sunday Times reported Ms Arcuri, an American who moved to London seven years ago, was given £126,000 in public money and was treated to privileged access to three foreign trade missions led by Mr Johnson while he was mayor.
Mr Cleverly, speaking to the BBC on Thursday, had said it was the job of Parliament to hold the Prime Minister to account, not the London Assembly.
"When I was on the London Assembly, it was quite common for Government ministers to refuse to appear," said the minister.
"The body that exists to scrutinise ministers is the House of Commons, the body that exists to scrutinise the mayor of London is the London Assembly, and there is a clear division and role there."
When told the PM could be in breach of the law for failing to explain himself, Mr Cleverly replied: "That's not my understanding. I'm willing to look into it."
The Government has frozen a £100,000 grant to Ms Arcuri's company, Hacker House, pending a review.
It is facing embarrassing questions about the verification process carried out before awarding the money.
Digital Minister Matt Warman said in the Commons that his department had done the "usual due diligence" and that the company had a British phone number.
However, numerous reports said calls to the number were directed to an office in California, where Ms Arcuri, 34, is said to now be based.
Mr Warman said: "This is a company that is based in Britain as far as Companies House is concerned. It is a company with a British phone number.
"We will review that, but we have no reason to think that there is anything untoward in this particular matter."
Almost half the money awarded, designated to improve digital skills in the UK, has already been handed to the training outfit.
The Greater London Authority Act 1999 gives the Assembly the power to call for evidence from a previous mayor up to eight years after their tenure, with fines and jail terms possible punishments for those refusing to comply.