The Sao Paulo state court system said in a statement that it had asked Judge Sergio Moro, who is heading the probe into Brazil's biggest ever corruption scandal, to take over the case.
Lula is accused by Sao Paulo prosecutors of hiding ownership of a luxury seaside apartment, which amounts to money laundering.
They also recommended that Lula, who denies ever having owned the property, be put into preventative detention.
Moro's federal team is already conducting a parallel probe into the property as part of an investigation into a giant bribes and embezzlement network based on state oil company Petrobras. No charges have been filed yet by Moro.
Lula, who founded the ruling Workers' Party, was president from 2003-2010 and remains the most important figure on Brazil's left, with ambitions to return to power in the 2018 elections.
Current President Dilma Rousseff, who is facing impeachment in Congress, relies heavily on Lula to maintain her own crumbling power base.
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