In denying the accusations of graft, Gordillo says she was simply wise in administering an inheritance from her grandfather.

She has also repeatedly denied accusations that she ordered the murder of a union rival in 1981. She was accused by the slain teacher's relatives.

For many years, Gordillo was a powerful figure in Mexican politics and once led Pena Nieto's Institutional Revolutionary Party (PRI) in the lower house Chamber of Deputies.

"Gordillo represented the incredible hold that vested interests have had over Mexican politics, the economy and society over the past 20 years or so," said Duncan Wood, Director of the Woodrow Wilson Centres Mexico Institute.

The union long had a cosy relationship with the PRI, and Gordillo's arrest could help reset the party's reputation, which has long been synonymous with cronyism, corruption and backroom deals.

Gordillo broke with PRI party leaders before the 2006 presidential election and founded the small New Alliance Party. That may have made her more vulnerable to investigation, especially once she made it clear she would oppose any reforms that weakened her union.

Politicians close to Gordillo were notably reluctant to defend her. The New Alliance Party said in a statement it would not issue opinions on the judicial process. Gordillo's daughter has said she does not want to talk about it.

Pena Nieto has insisted the arrest of Gordillo has nothing to do with politics, but inside Mexico it is widely seen as a clear message from his government that it will push ahead with economic and political reforms and will go after troublesome officials who try to block change.

"This goes way beyond education. It's about sending a signal to other unions in particular that they need to come on board to the government's program," Wood said. "As it has played out, I think it has been a stroke of genius."

Mexico's public education system is in a mess, dragging on the potential growth of Latin America's No.2 economy, and many people blame Gordillo and other union leaders for blocking efforts to improve teaching standards.