Supreme Court judges ruled that Brazil's Senate president, Renan Calheiros must face trial for alleged embezzlement.
After a roller-coaster year for Brazil, the latest allegations risk destabilizing Temer just six months after he took office, as he seeks to rescue Latin America's biggest economy from crisis.
Supreme Court judges ruled that Brazil's third-most powerful official, Senate president Renan Calheiros, 61, must face trial for alleged embezzlement.
He denies the accusations that he used public funds to make maintenance payments to a woman with whom he had a child.
In a separate case, Calheiros is also among numerous top politicians including an ex-president and lawmakers accused of helping steal billions from state oil firm Petrobras.
In a fresh development in the Petrobras affair on Thursday, a source close to construction firm Odebrecht told AFP that 77 of its current and former executives had signed a plea deal with investigators.
They agreed to cooperate with prosecutors in return for lighter sentences, said the source, who asked not to be named.
The 77 include the firm's jailed boss Marcelo Odebrecht, who was reported earlier this year to have named Temer in testimony to investigators.
The firm also agreed to pay a $2 billion fine over the affair.
Temer is not being formally investigated himself, but the Petrobras scandal has already driven several of his ministers to resign.
Brazilian media said the plea deal could lead to 100 more suspects being dragged into the sprawling Petrobras probe, dubbed Operation Car Wash by investigators.
Marcelo Odebrecht was handed a 19-year jail sentence in 2015 for corruption and money-laundering. The new plea deal could lead to his term being reduced.
The separate embezzlement case caught up with Calheiros as a battle between prosecutors and politicians was raising tensions.
Calheiros had tried unsuccessfully on Wednesday to push through an urgent reform that would challenge judges' powers to investigate corruption.
Prosecutors threatened to resign, saying the reform would undermine Operation Car Wash.
Temer had previously vowed to block any attempt by legislators to grant themselves a corruption amnesty.
In the case now going to trial, Calheiros has insisted he made the maintenance payments out of his own funds.
But the Supreme Court judges said there was sufficient evidence to put him in the dock.
Calheiros and Temer were the leaders of the impeachment case that drove their leftist rival Dilma Rousseff from office.
Conservative Temer, 76, took over as acting head of state in May pending the impeachment proceedings.
He became full president in August after she was formally removed from office in a Senate impeachment trial.
Senators declared her guilty of fiddling the public accounts while in office.
She denied the claims and branded the impeachment trial a "coup" contrived by Temer, her former vice-president.
Rousseff's predecessor and ally Luiz Inacio Lula da Silva has himself been snared by the separate Petrobras affair.
Prosecutors have accused him of influence peddling by helping Odebrecht win contracts after leaving office in 2010.
He has denied the claims.
The political drama has struck as Temer is trying to push tough public spending cuts to drag Brazil out of recession.
Protesters and police clashed violently on Tuesday as the Senate approved a 20-year government spending freeze in a preliminary vote.
Reflecting the tensions, the Sao Paulo stock exchange plunged by nearly four percent on Thursday.
Brazil's currency, the real, weakened by 2.4 percent against the dollar.