The affair concerns charges that Bernard Squarcini broke press freedom laws by illegally obtaining the phone records of journalists at Le Monde. The newspaper had been investigating an alleged financial scandal involving donations to the governing UMP party by L'Oréal heiress Liliane Bettencourt.
The affair led to the resignation of the party treasurer and employment minister Eric Woerth.
Squarcini is the head of the Direction Centrale du Renseignement Intérieur (DCRI), the main domestic intelligence agency.
Bernard Squarcini has acknowledged what happened but said that the target of the investigation was a civil servant at the justice ministry who had been leaking information to the journalists, presenting a possible security risk.
Squarcini was questioned on Monday on preliminary charges of "violating secret correspondence" and "unlawfully collecting data" according to his lawyer, Patrick Maisonneuve. He told journalists he rejected the charges and would not resign his post.
Under French law, preliminary charges allow magistrates to continue investigating before determining whether to send a case to trial.
Newly-appointed Socialist nominee for the presidential elections in 2012, François Hollande, used the affair in his first interview as the party's candidate on the nightly TF1 news programme.
"Can you imagine the head of counter-espionage spying on journalists or public servants?" he said. "I'm astonished that the interior minister has not already announced the resignation of Bernard Squarcini because these events are serious."
Speaking on the competing France 2 news programme at the same time, prime minister François Fillon said the government would make decisions "according to the judicial process."
The head of police, Frédéric Pechenard, will also be questioned by the investigating magistrate, Sylvia Zimmermann, in the next few days.