The public prosecutor's office in Hannover, Lower Saxony, where Wulff was formerly state premier, announced late on Thursday it had asked the Bundestag lower house of parliament to lift the president's immunity - a pre-requisite for any inquiry to begin.
They said that after extensive examination of new documents and the evaluation of media reports it now saw enough grounds for an "initial suspicion" of accepting or granting favours, against Wulff, a member of Chancellor Angela Merkel's conservative Christian Democratic Union.
The Hannover prosecutors also announced an "initial suspicion" against Wulff's film producer friend David Grönewold, who reportedly picked up the bills for Wulff's hotel and an upgrade during two short breaks. Wulff's lawyers have said he repaid the money in cash for one of the stays.
"It's now too much, Christian Wulff must face the consequences," opposition Greens MP Christian Ströbele told the Tagesspiegel daily on Friday. He said it was unimaginable for Wulff to remain in office during a criminal investigation.
Wulff, 52, first landed in hot water in December when it was reported he had failed to declare a home loan at an advantageous interest rate he accepted from the wife of a tycoon friend while premier of Lower Saxony.
When opposition state deputies asked him whether he had business ties to the tycoon or any firms connected with him, Wulff had kept quiet.
As other claims, including over alleged free holidays accepted from wealthy friends, emerged almost daily about Wulff, he was forced to make a nationally televised mea culpa.
Wulff, whose role is largely ceremonial but which acts as kind of moral arbiter, has faced calls for his resignation over the home loan and subsequent claims he tried to hush up the story, but has insisted he wants to stay in office.
"I am pleased to assume my responsibilities (as president), I took them on for a five-year term," Wulff said in a televised interview in early January.
Chief whip for the opposition Social Democratic Party, Thomas Oppermann, said in a German newspaper on Friday that his party would vote unanimously for the president's immunity to be lifted.
"I expect that also from the Union and the Chancellor," he told the Passauer Neue Presse, referring to Merkel's conservative Christian Democratic Union party.
Merkel's spokesman has repeatedly said held Wulff in "great esteem" both as a person and as a president, but the scandal is an increasingly unwelcome distraction as she seeks to focus on the eurozone debt crisis.
Wulff's presidency has been rocky from the start. His election in June 2010 proved humiliating for Merkel as members of her own coalition broke ranks and refused to vote for him in parliament amid a strong challenge from a former East German dissident, a political outsider.
Wulff, who had once been considered a potential challenger to Merkel, only eked out a victory in the third round.