A French judge has charged the former head of the International Monetary Fund Dominique Strauss-Kahn over his alleged links with a prostitution ring.

In a surprise hearing – two days before he had been officially summoned – the veteran French politician was placed under formal investigation and told he faced further questioning on charges of "complicity in aggravated and organised prostitution" and "misuse of company assets".

Investigators want to establish if Strauss-Kahn knew the girls he has admitted having sex with during "libertine" parties in various cities including Paris and Washington, were paid. Strauss-Kahn, 62, has denied having any such knowledge and denied any wrongdoing.

He was "mis en examen", the French equivalent of being charged, after being held in police custody and quizzed for two days in February over an alleged high-class prostitution ring centre on the luxury Carlton Hotel in the northern city of Lille. The charges carry a maximum 20 year jail term.

The orgies, at which Strauss-Kahn – or DSK as he is known – has admitted having sex with a number of women, were allegedly organised by high-ranking police officers and business contacts from Lille with whom he had links.

However, he has always insisted he never paid any of them and did not know they were prostitutes. Paying prostitutes for sex is not illegal in France but procuring them is. The police inquiry in what has become known as the "Carlton Affair" also hinges on whether Strauss-Kahn knew the girls were being paid for by a major French construction company, as alleged.

A total of eight people, including a Lille police commissioner, are under investigation in the affair.

This time last year, socialist Strauss-Kahn was being widely tipped to beat Nicolas Sarkozy in next month's presidential elections and become the next leader of France. His political ambitions were shattered when he was arrested in New York on charges – later dropped – of sexually assaulting Guinean-born hotel chambermaid Nafissatou Diallo.

Diallo is now bringing a civil case against the French politician, which is due to open in New York on Wednesday. Strauss-Kahn has always denied wrongdoing and claimed the sex was consensual and involved no "aggression or constraint".

After Strauss-Kahn was released just after 10pm, a police source told French journalists the former government minister had informed them he could not possibly have imagined the young women he was introduced to were prostitutes as some were "presented by police officers".

At an earlier hearing his lawyer Henri Leclerc told the French radio station Europe 1: "He could easily not have known because, as you can imagine, at these kinds of parties you're not always dressed, and I challenge you to distinguish a naked prostitute from any other naked woman."