Satyam is the fourth biggest software firm in India
The Indian government has said that the scandal involving Satyam Computers will be investigated by a federal office dealing with serious corporate fraud.
The company's chairman, Ramalinga Raju, resigned last week after admitting to years of accounting malpractices.
The Minister for Company Affairs, Prem Chand Gupta, said the investigation would examine the case in detail and submit its report within three months.
He said that Satyam's auditors would also be investigated.
The government installed a new board for Satyam on Sunday as it tried to contain the fallout from the scandal.
'Not rotten'
The BBC's Jyotsna Singh in Delhi says that the support expressed by the British Foreign Secretary, David Miliband on his visit to Delhi could help provide much needed reassurance for investors.
Ramalinga Raju was arrested on Friday
He rejected the view that the Satyam case had blown a hole in India's image.
"I don't believe that one bad apple means that the whole barrel is rotten.
"Quite the opposite, I think India's economic development has been based on real sound macroeconomics, on entrepreneurial spirit and on a zeal for innovation - and of course the Indian laws in respect to corporate governance need to be implemented in a hard-headed and clear way," he said.
Meanwhile police have told the Associated Press news agency that they have searched the offices of PricewaterhouseCoopers (PWC), Satyam's auditors, in the city of Hyderabad on Tuesday.
The raid follows Mr Raju's admission that Satyam's balance sheets were riddled with "fictitious assets", and "non-existent" cash amounting to a £1bn gap that could no longer be concealed.
But a PWC spokesperson said there had been no raid and that they were in discussion with different agencies to provide information requested by them.
"We are fully co-operating with the agencies and providing whatever information, documents and materials that have been asked for," the spokesperson said.
Our correspondent says that Satyam's difficulties contrast with other more positive news for the Information Technology sector.
The country's second biggest IT company, Infosys Technologies, beat market expectations with a one-third jump in quarterly profits.
Infosys said it was not suffering as a result of the Satyam scandal. However, analysts say international firms might be wary of giving large contracts to India in the future.
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