The person spoke to The Associated Press on condition of anonymity to protect the identity of a client who has been questioned as part of the probe. The case, which has been assigned to two federal prosecutors and two FBI agents in Delaware, has not been brought before a grand jury.
O'Donnell, who set a state record by raising more than $7.3 million in a tea party-fueled campaign this year, has long been dogged by questions about her personal and campaign finances.
At least two former campaign workers have alleged that O'Donnell routinely used political contributions to pay personal expenses including her rent in recent years as she ran for the Senate three consecutive times, starting in 2006.
Her campaign issued a statement Wednesday denying that she misspent campaign money and saying it has heard nothing from authorities.
"If anything does materialize from this rumor, we will continue to fully cooperate as we have made every attempt to ensure we are in compliance with all rules and regulations," the statement said.
O'Donnell called the allegations politically motivated and suggested that the Obama administration - particularly Vice President Joe Biden, who represented Delaware in the Senate for decades - could be behind it.
"Given that the king of the Delaware political establishment just so happens to be the vice president of the most liberal presidential administration in U.S. history, it is no surprise that misuse and abuse of the FBI would not be off the table," she said in the statement.
The U.S. Attorney's office has confirmed it is reviewing a complaint about O'Donnell's campaign spending lodged this year by a watchdog group, Citizens for Responsibility and Ethics of Washington, but officials in the office and the FBI declined to say whether a criminal investigation was under way.
CREW filed a complaint with the Federal Election Commission raising allegations about O'Donnell's campaign spending. The group asked Delaware's federal prosecutor to investigate.
Although O'Donnell's campaign has denied wrongdoing, she has acknowledged she paid part of her rent at times with campaign money, arguing that her house doubled as a campaign headquarters.
Federal law prohibits candidates from spending campaign money for personal benefit. FEC rules state that this prohibition applies to the use of campaign money for a candidate's mortgage or rent "even if part of the residence is being used by the campaign," although O'Donnell's campaign maintained that it was told otherwise by someone at the agency.
O'Donnell drew national attention in September when she upset U.S. Rep. Mike Castle for the GOP Senate nomination. She was handily defeated in November by Democrat Chris Coons following a campaign that focused largely on past controversial statements, including that she'd "dabbled into witchcraft" when she was young.
One former O'Donnell staffer, Kristin Murray, recorded an automated phone call for the Delaware Republican Party just before the primary, accusing O'Donnell of "living on campaign donations - using them for rent and personal expenses, while leaving her workers unpaid and piling up thousands in debt."
Another former aide, David Keegan, said he became concerned about O'Donnell's 2008 campaign finances as she fell behind on bills and had no apparent source of income besides political contributions. He submitted an affidavit to CREW alleging that she used campaign money to cover meals, gas, a bowling outing, and rent to a landlord, Brent Vasher.
Vasher, a nephew of Keegan's and a one-time boyfriend of O'Donnell, declined comment when asked by The AP if he had been contacted by authorities. Vasher bought O'Donnell's house in 2008 after she was served with a foreclosure notice, then charged her rent to stay there, according to CREW's complaint.
In a message sent last week to The AP, Keegan said he had not been questioned as part of a criminal investigation, and that he considers himself only a "catalyst" in a case in which several people must be questioned to scrutinize O'Donnell's accounting practices and alleged misuse of campaign funds.
During her three failed Senate bids, O'Donnell had numerous campaign treasurers, many of whom left after serving brief stints. After losing two treasurers in 2009, she named herself treasurer until this past summer. Another short-term treasurer took over in August and resigned less than two months later, at which point campaign manager Matt Moran added the treasurer's role to his responsibilities.
Democrat Charles Oberly III, the U.S. attorney for Delaware, and his predecessor, David Weiss, did not immediately return messages Wednesday seeking comment. Oberly was sworn in Tuesday as Weiss' successor.
Kim Reeves, a spokeswoman for the office, reiterated Wednesday that the office was reviewing the CREW complaint. She would not confirm the existence of a criminal probe.
Rich Wolf, a spokesman for the Baltimore office of the FBI, said he could neither confirm nor deny the existence of any investigation.
Murray, the former aide who recorded the automated message, also said she had not been contacted about the investigation.
O'Donnell, who announced just after Election Day that she had signed a book deal, hasn't held a full-time job in years and has struggled to explain how she makes a living.
She reported in July that she earned only $5,800 in income for the previous 18 months through freelance public relations work. She said she lived mostly on a savings account that she reported in an amended Senate disclosure report as being worth between $1,000 and $15,000.
Her financial past includes a tax lien from the IRS, a lawsuit from the university she attended over unpaid bills and a foreclosure action that she avoided by selling her house to Vasher just before a sheriff's auction. Her campaign maintained the tax lien was an IRS mistake and she attributed some of her other financial problems to mix-ups.
Her campaign reported spending some $6.1 million in the 2010 campaign. Moran said earlier this month that campaign attorney Cleta Mitchell advised reserving several hundred thousand dollars for legal fees to defend against the campaign spending allegations.
"We've been warned by multiple high-ranking Democrat insiders that the Delaware Democrat and Republican political establishment is jointly planning to pull out all the stops to ensure I would never again upset the apple cart," O'Donnell said in her statement Wednesday. "Specifically they told me the plan was to crush me with investigations, lawsuits and false accusations so that my political reputation would become so toxic no one would ever get behind me."
Barakat reported from McLean, Va. Associated Press writers Ben Nuckols in Baltimore and Randall Chase in Dover, Del., contributed to this story.
Full statement from O'Donnell campaign:
December 29, 2010. Wilmington, DE: Christine O'Donnell's campaign released the following statement in response to investigation rumors and states that Democrat insiders warned her that the "Establishment" would use phony investigations to end her political career.
Campaign Manager Matt Moran responded to the rumor of a criminal investigation, "We have heard absolutely nothing other than the same unsubstantiated allegations and rumors that have been circulating in the press for months. If anything does materialize from this rumor, we will continue to fully cooperate as we have made every attempt to ensure we are in compliance with all rules and regulations. The politically motivated charge was all started by false accusations by Christine's political opponents, and ratcheted up by former Biden staffer Melanie Sloan and CREW with their false claims. Let us be clear: there was no impermissible use of campaign funds. Period. This is just an ongoing effort by the George Soros-funded CREW and other liberal groups and individuals to intimidate and threaten Christine, even after the election."
Christine O'Donnell continued, "Since anonymous sources are being taken seriously, please allow me to share some tips I've received and keep the tipsters' identities anonymous. We've been warned by multiple high-ranking Democrat insiders that the Delaware Democrat and Republican political establishment is jointly planning to pull out all the stops to ensure I would never again upset the apple cart. Specifically they told me the plan was to crush me with investigations, lawsuits and false accusations so that my political reputation would become so toxic no one would ever get behind me. I was warned by numerous sources that the DE political establishment is going to use every resource available to them. So given that the King of the Delaware Political Establishment just so happens to be the Vice President of the most liberal Presidential administration in U.S. history, it is no surprise that misuse and abuse of the FBI would not be off the table. And further connecting the dots, do you think it is just a coincidence that Melanie Sloan was a senior Biden staffer just before she joined CREW and filed her complaint against me?!
"I have faith that our supporters and the general public will see right through these thug tactics. This is simply an Establishment trick to stop the anti-establishment Tea Party movement in its tracks. Heck, the Presidency is at stake in 2012."