Israel's Attorney General Avichai Mandelblit announced Thursday that he was indicting Prime Minister Benjamin Netanyahu on charges of bribery, fraud and breach of trust.
Netanyahu has previously denied any wrongdoing and has said he is the victim of a politically orchestrated "witch-hunt" by the media and the left.
It comes while Netanyahu is serving as Israel's caretaker prime minister after he failed to cobble together a government last month.
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Netanyahu had hoped to pass legislation that would prevent him from being indicted but has been unable to do so because he failed to form Israel's next government following the Sept. 17 election.
The caretaker prime minister still has the option to ask the Israeli Parliament for immunity. But this request would need to be approved by a special committee that has not been established due to ongoing political deadlock.
Netanyahu's chief political rival Benny Gantz announced Wednesday that he had also failed to form a government, prolonging the country's political uncertainty and raising the prospect of Israel holding its third national election in a year.
There are now 21 days in which any member of Parliament can become prime minister if they muster the 61 signatures needed to achieve a majority in the Knesset. If that does not happen Israel will return to the polls.
In which case, Netanyahu's indictment potentially poses a new legal problem.
If he wins the next election, it will be the first time a candidate for government is under indictment, raising the question as to whether President Reuven Rivlin can give Netanyahu the mandate to form the next government.