Dresden's lead prosecutor, Lorenz Haase, confirmed on Wednesday that a perjury investigation has been opened against Petry, the co-leader of the Alternative for Germany (AfD) party, the Frankfurter Allgemeine Zeitung reports.
The 40-year-old is accused of lying to the state electoral committee over financing for the party's 2014 state election campaign in Saxony.
The state parliament in Saxon capital Dresden, where Petry is an elected representative, has now been informed, said Haase.
The Alternative for Germany (AfD) have been stealing the headlines for much of 2016 in Germany.
Riding on growing public anger over the huge refugee influx which saw over one million people arrive in Germany in 2015, their polling figures have increased steadily since the summer.
After sexual assaults were reported on hundreds of women in Cologne over New Year, allegedly carried out by men of North African or Middle Eastern backgrounds, public faith in the pro-refugee stance of the mainstream parties was badly damaged - and the AfD were there to pick up the pieces.
At state elections in March, they were the only party (aside from a fringe neo-Nazi one) to go against an open-door refugee policy, and stunned the political establishment, scoring over 20 percent in one state at their first time of trying.
Merkel mark two?
At the centre of this success stands the diminutive Frauke Petry.
A daughter of former east Germany with short-cropped hair and a degree in science, in many ways she is not so different to the woman she hopes to rout from power, Chancellor Angela Merkel.
But, the comparison only goes so far. Photogenic and sharp-tongued, she is always good for a fiery quote or a photo op - unlike the staid, reticent and sometimes awkward Chancellor.
One of the founders of the party back in 2013, she took over leadership during a power struggle in the summer of 2015 and led it from its anti-Euro single currency roots to become best known for its rejection of Islam as a part of German life.
In recent months she has been accused of bigotry and racism for suggesting border police could be permitted to shoot at refugees and for arguing that minarets should be banned in Germany. But this has done little to stem her popularity or shift attention away from her party.
However, just as her star appears to be rising, Petry could be in very hot water with the judiciary.
She stands accused of lying to a parliamentary electoral committee over donations made to the party during state elections in Saxony in 2014.
An AfD candidate insisted that he had been forced to make a donation to the party in order to be able to stand. When he didn't pay up his name was struck from the list, he claims.
Petry told the parliamentary committee that the donations were purely voluntary.
State prosecutors initially decided not to pursue the case, stating that a witness cannot commit perjury in front of a parliamentary committee, since one is not under oath.
General prosecutors disagreed, pointing to the electoral law of Saxony, which states that witnesses at an electoral examination committee can be examined and defended.
“It is astonishing and very unusual that the general prosecutor has overturned a decision of the state prosecutor so quickly,” André Schollbach, a member of the state parliament for the Left Party, and one of the people who filed charges against Petry, told The Local.
The chair of the parliamentary committee, Marko Schiemann, also expressed surprise at the original ruling, telling Die Zeit “our work on the committee is dependent on the constitution of Saxony and Saxon electoral law.”