The Department of Health is to investigate how Jimmy Savile was allowed to work as a volunteer following allegations that he abused and raped patients at Broadmoor hospital in the 1970s and 1980s.
A spokeswoman said there would be an investigation into how the TV presenter was appointed to lead a "taskforce" overseeing a restructuring of the hospital's management.
In a statement, the department said: "We will investigate the Department of Health's conduct in apparently appointing Savile to this role.
"Although the framework for child protection and safeguarding for Broadmoor and other special hospital patients changed radically in 1999, we of course want to establish the circumstances and see if any lessons can be learned.
"In hindsight, he should very obviously not have been appointed. Had anyone involved in the appointment been aware of allegations of abuse against Savile, we would not have expected him to have been appointed."
It comes as lawyers acting for Savile's alleged victims are said to be considering taking legal action against several NHS trusts and the BBC.
Lawyer Liz Dux, of Slater and Gordon, and an expert in personal injury and child abuse cases, told The Guardian newspaper she was acting for a number of women who want to sue on the grounds of vicarious liability.
Meanwhile, a former BBC governor has told Sky News she is "horrified" by the Savile allegations and that it is vital to discover what behaviour was tolerated at the corporation.
Baroness Pauline Neville-Jones said it was important the public understood what decisions were taken over the airing of the Newsnight programme looking into the scandal.
"The Newsnight inquiry seems to me to be relatively simple, that is establishing what the facts were, about the decision by the Newsnight team to abandon their investigation," she said.
"It's a programme with a good track record but there is clearly something there to be investigated and, for the record, to be put straight."
Scotland Yard is pursuing 340 lines of inquiry in the Savile abuse case, involving 40 alleged victims, the force revealed.
In an interview with Sky News, the Childline founder and long-time BBC presenter Esther Rantzen described rumours she heard about Savile during her time at the corporation as "extremely vague".
"The rumours that I heard were extremely vague. It was said that Jimmy Savile liked very young girls. That's all I heard," she said.
"But rumour isn't actually knowing ... so many rumours are completely false. All rumours are almost impossible to find the evidence to prove one way or another.
"The people who were spreading the rumours didn't know Jimmy Savile at all ... at my level all I heard was people who never met Jimmy Savile talking about things in the vaguest possible way, rumours which could have been completely untrue."
The abuse campaigner Shy Keenan told The Sun newspaper on Saturday that she told Ms Rantzen about allegations against Savile some 18 years ago.
Asked about the claims, Ms Rantzen replied: "I have no memory whatever of this lady. I'm sorry to be disrespectful, but I don't remember the conversation at all.
"She said in The Sun that she told me about rumours. If she did, I would have said to her: 'Can you take it any further; can you discover any evidence; can you pass it to the police'."
The Metropolitan Police Service, which is investigating the Savile claims, said it had officially recorded 12 allegations of sexual offences against the TV presenter, but expected that number to increase.
Met detectives are in contact with 14 other forces as the number of allegations against the late Top Of The Pops host continues to rise.
Staff at the University of Bedfordshire also revealed that they had revoked an honorary degree that had been awarded to the star.
A statement said: "The honorary award for Jimmy Savile was in recognition of his charitable fundraising. It was given in good faith in 2009 without the knowledge of the current very serious allegations.
"In this light, the University of Bedfordshire has confirmed that the honorary award should be rescinded."
BBC Director-General George Entwistle announced in a news conference the corporation would launch a "forensic and soul-searching" independent review into the culture and practices at the BBC in the wake of the allegations.
He said a second review would also be carried out into the decision by Newsnight editors not to broadcast an expose on Savile.
He said: "I would like to offer a profound and heart-felt apology on behalf of the BBC to every victim. The BBC will not avoid confronting the events of its past.
"Jimmy Savile's victims have faced years of pain. We owe it to them and our audiences to investigate how this could have happened."
Former BBC Director-General Greg Dyke said he knew nothing of the allegations until two weeks ago.
Savile, who raised millions of pounds by running marathons and half-marathons, has now been removed from the Great North Run'' Hall of Fame.