Boris Johnson ordered a Cabinet Office investigation into Nusrat Ghani's Islamophobia claims on Monday after a row engulfed the Conservative Party over the weekend.
Ms Ghani had accused Boris Johnson of failing to take her concerns "seriously" when she reported the matter to him directly in July 2020.
This came after she lost her job as a transport minister in a reshuffle in February 2020, claiming she was told after being sacked that her "Muslim woman minister status was making colleagues feel uncomfortable".
Ms Ghani also said she had been told "that I wasn’t loyal to the party as I didn’t do enough to defend the party against Islamophobia allegations".
Mark Spencer, the Chief Whip, took the rare step of outing himself as the subject of the claims, which first appeared in the Sunday Times newspaper and he categorically denied.
"These accusations are completely false and I consider them to be defamatory," Mr Spencer wrote. "I have never used those words attributed to me."
The Prime Minister has now ordered the Cabinet Office to launch a new investigation, it emerged on Monday morning.
Ms Ghani welcomed the investigation in a tweet, writing: "As I said to the Prime Minister last night all I want is for this to be taken seriously and for him to investigate.
"The terms of reference in this inquiry must include all that was said in Downing Street and by the Whip. I look forward to seeing the terms of reference."
Downing Street said at the weekend that Mr Johnson had encouraged Ms Ghani to report the matter to the party's complaints process when they first met about the matter in 2020.
However, Ms Ghani refuted this and said his suggestion that she submitted an internal complaint was "very clearly not appropriate".
It comes after two senior cabinet ministers broke ranks at the weekend to call for an inquiry.
Nadhim Zahawi, the Education Secretary, said on Twitter on Saturday night: "This has to be investigated properly & racism routed out"
On Sunday, Sajid Javid, the Health Secretary, followed suit and said he would "strongly support her in making a formal complaint - she must be heard".
Mr Zahawi said on Monday "the right thing to do is allow the Cabinet Office to investigate" and would not be drawn on the veracity of Ms Ghani or Mr Spencer's claims.
He had never experienced any form of racism "institutional or otherwise" in four decades as a member of the Conservatives, he said this morning.
During her two years as a minister, Ms Ghani pledged to widen engineering opportunities for young people while staunchly cheerleading for HS2 - using a Westminster Hall debate to insist it was “on track” and running to “one budget and one timetable”.
However, an official report in January 2020 found HS2 was over-budget and years behind schedule because ministers “underestimated the complexity” of the project. Ms Ghani lost her Department for Transport role in Boris Johnson’s reshuffle the following month.
From the backbenches, she has focused especially on international affairs, passing a motion in April 2021 declaring that China was committing genocide against the Uighurs.