The National Crime Agency (NCA) is to investigate fresh allegations of abuse in children's homes in North Wales amid claims that a senior Tory was among the perpetrators.
The Home Secretary said the director general of the NCA, Keith Bristow, would review the original police handling of the case - which dates back to the 1970s and 1980s - as well as looking at the latest allegations by one of the victims.
"The Government is treating these allegations with the utmost seriousness," Theresa May told MPs in a Commons statement.
"Child abuse is a hateful, abhorrent and disgusting crime and we must not allow these allegations to go unanswered."
Mrs May said she would also consider Labour calls for a wider, over-arching inquiry into child abuse - including the allegations involving the late DJ and BBC presenter Sir Jimmy Savile - if the evidence was shown to justify it.
Labour backbencher Tom Watson, who has raised claims of a former Cabinet minister allegedly involved in child abuse, dismissed the latest moves as simply "the next stage of a cover-up".
The announcement comes after David Cameron said he would be appointing a senior figure to review the original public inquiry, led by retired High Court judge Sir Ronald Waterhouse, into abuse at the Bryn Estyn children's home.
Downing Street later announced that High Court Judge Mrs Justice Macur would carry out the review.
The investigations followed renewed allegations last week by one of the victims, Steve Messham, who said the inquiry examined only a fraction of the claims of abuse.
He told BBC2's Newsnight that he was taken out of the home and "sold" to men for sexual abuse at a nearby hotel and that a senior Tory from the time was among the abusers.
Mr Messham has met with Welsh Secretary David Jones in Whitehall to discuss his allegations.
Speaking afterwards outside the Wales Office on Whitehall, where the meeting took place, he said he would be a thorn in the side of the government.
"I haven't got confidence that it's going to be done properly yet, I've got to be convinced of that.
"After all's said and done, when the inquiry was announced, that was a Tory government. We're back to a Tory government. Let's just see how it goes."
Asked what he and Mr Jones discussed, he said: "We discussed about what went on in the past, what was covered up, what shouldn't have been covered up and what we're going to do in the future.
"I think the investigation will take a different route this time. I certainly have confidence that they're taking us seriously, of course - we wouldn't be here today if they weren't taking it seriously."
Asked how he felt now, he said: "It's been hell. You live in the past. But someone's got to do it.
"I'd like to say to all the ones out there that are frightened to come forward, if you want to contact me, contact me. I'll put you in touch with the right people."
In her statement, Mrs May warned MPs not to use parliamentary privilege to try to name the alleged suspect as it could jeopardise the prospect of any future criminal trial.
Mr Bristow will lead a team of officers drawn from the Serious and Organised Crime Agency (Soca), the Child Exploitation and Online Protection Centre (Ceop) and "other investigative assets as necessary".
He will produce an initial report by next April.
Mrs May said HM Inspectorate of Constabulary, which is drawing together details of allegations made to police forces around the country against Savile, would be able to take into account any lessons that emerge during his inquiry.
Tory former children's minister Tim Loughton said he had predicted the Savile allegations would be the "tip of the iceberg".
He said: "We should not be surprised now child abuse has raised its head within a political spectrum as well.
"Is it not now time, rather than wake up every week to see a new institution involved in this mire, that we have an overreaching, robust public inquiry into the whole failings of child protection in various institutions throughout the latter part of the 20th century, be it the BBC, the health service, the police, the church and so on?"