IMF chief Christine Lagarde is to stand trial in France for alleged negligence over a €404m ($438m; £294m) payment to a businessman in 2008.
She was finance minister in President Nicolas Sarkozy's government at the time of the compensation award to Bernard Tapie for the sale of a firm.
Mr Tapie supported Mr Sarkozy in the 2007 presidential election.
Ms Lagarde's lawyer described the court's decision as "incomprehensible", and said the IMF boss would appeal.
In a statement she said she had "always acted in this affair in the interest of the state and in respect of the law", according to AP.
Mr Tapie was once a majority shareholder in sports goods company Adidas but sold it in 1993 in order to become a cabinet minister in Francois Mitterrand's Socialist government.
He sued the Credit Lyonnais bank over its handling of the sale, alleging that the partly state-owned bank had defrauded him by deliberately undervaluing the company.
His case was later referred by Ms Lagarde to a three-member arbitration panel which awarded the compensation, causing a public outcry.
Investigators suspect he was granted a deal in return for his support of Mr Sarkozy.
Earlier this month, a French court ruled that Mr Tapie was not entitled to any compensation for that sale and should pay back the €404m with interest.
France's Court of Justice of the Republic (CJR) decided that Ms Lagarde, 59, should be tried on the charge of "negligence by a person in position of public authority" over the compensation case, iTele TV channel and the Mediapart website reported on Thursday.
A court spokesman later confirmed the decision.
If convicted, she could be sentenced to one year in prison.
French media said the CJR investigation magistrates declined to follow the recommendation of another court which last year decided not to pursue the case.
"It's incomprehensible," Ms Lagarde's lawyer Yves Repiquet told iTele. "I will recommend Mrs Lagarde appeal against this decision."
A spokesman for France's attorney general said Ms Lagarde would have five days to appeal, once the court decision is made public on Friday or Monday.
Meanwhile, IMF spokesman Gerry Rice said the organisation - which represents 188 member nations - "continues to express its confidence in the managing director's ability to effectively carry out her duties".
Bernard Tapie: A French saga
1993: Credit Lyonnais bank handles sale of Adidas, in which Bernard Tapie is a majority stakeholder, to enable tycoon to pursue ministerial career under then Socialist President Francois Mitterrand
1993-2007: Mr Tapie claims Credit Lyonnais undervalued Adidas and that he was cheated; lengthy court battle ensues
1994: Bernard Tapie's highly indebted group collapses and is wound up by Credit Lyonnais
2007: Mr Tapie switches support to conservative Nicolas Sarkozy in presidential election. Finance Minister Christine Lagarde intervenes in Tapie case to order binding arbitration
2008: Special judicial panel rules Mr Tapie should receive damages of €404m; Ms Lagarde decides not to challenge ruling, prompting public outcry
2011: Public prosecutor recommends judicial investigation into Ms Lagarde's decision to order arbitration
2013: Ms Lagarde is questioned by magistrate and her Paris apartment searched. Mr Tapie is placed under investigation by prosecutors investigating corruption claims
2014: French prosecutors open formal investigation of negligence into Ms Lagarde
3 December 2015: A court orders Mr Tapie to pay back €404m with interest
Ms Lagarde replaced Dominique Strauss-Kahn as IMF managing director in 2011.
Mr Strauss-Kahn - also a former French minister - resigned following his arrest in New York on charges of sexual assault that were later dropped.