The Department of Health (DoH) is to investigate the decision to appoint Sir Jimmy Savile as head of a taskforce overseeing Broadmoor hospital in 1988.
It comes after the Sun reported claims he abused a 17-year-old patient on a visit to the psychiatric hospital in Berkshire as a fundraiser in the 1970s.
The DoH said the abuse claims were "disturbing" and the entertainer should not have been appointed to the role.
Police said they now had 340 lines of inquiry on the sex abuse claims.
Savile, who presented Top of The Pops and Jim'll Fix It in the 1970s and 80s, died in October 2011, aged 84 but sexual abuse allegations against him have only emerged this month.
The DoH had responsibility for running the high-security hospital when Savile was appointed, but West London Mental Health NHS Trust has been in charge since 2001.
A DoH spokesman 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."
He added: "These are extremely disturbing allegations and we would expect any part of the NHS that is involved to cooperate fully with any investigation."
The Guardian reported that Savile's appointment came in 1988, after the hospital's management board was dismissed by the then health secretary Ken Clarke.
However, Mr Clarke's special adviser said the Conservative MP, who was made health secretary in July 1988, had no recollection of this, and the appointment may not have been made when he was in his post.
Alan Franey, who was on the taskforce with Savile, said it was set up by the DoH following a critical report which said patients were too institutionalised and not offered enough care at Broadmoor.
The hospital now houses only male adult patients, but in the 80s accompanied children were allowed to visit relatives at the hospital.
Mr Franey said that as a member of the taskforce, Savile would have been able to "come and go at the hospital as he pleased".
"I am shocked at what I've heard and read. This is not my experience of Jimmy Savile who I met informally," he said.
'A bit late'
In an interview with the BBC one former patient at Broadmoor said Savile had already been turned away by Rampton hospital in Nottinghamshire.
Steven George, who was known as Alison Pink while at the hospital and has since had a sex change, described how he felt after the abuse.
He said: "It was like another insult. I'm in a top security hospital and someone has got to me again. When does it stop?"
Mr George, who was released from Broadmoor in the 1990s when he was 38 years old, says he told the police about what had happened but they did not believe him and wrote down nothing about his allegations.
He said of the inquiries which have recently been launched: "It's the right action but it's a bit late."
Mr George, now 60, said he was "not in it for compensation" but just wanted the "enablers" brought to justice.
Janet Cope, 71, who was Savile's personal assistant for 30 years, said she visited Broadmoor with him, adding: "I knew he had the keys but didn't think anything of it."
She said of the continued claims: "I don't believe it, but I wasn't with him 24/7."
When the BBC asked the DoH to explain what Savile's role involved, how much access he had to patients, how he came to be appointed to the role and whether he had keys to the hospital, a spokeswoman said: "We have to wait for the police investigation to uncover the facts.
"This issue dates back to the late 80s and will take time to gather all the facts."
The Metropolitan Police said it was now in contact with 40 potential victims of Savile and continued to liaise with 14 police forces. The Met has officially recorded 12 allegations of sexual offences but expects this number to grow.
The BBC said it would not be able to comment on the claims while the police investigation was ongoing.
In separate developments:
- The BBC is to hold two inquiries into the Savile affair. The first will ask why a BBC Newsnight investigation into Savile was shelved last year. The second is whether culture and practice at the BBC at the time enabled Savile to carry out the sexual abuse of children.
- The University of Bedfordshire said an honorary award it gave Savile in 2009 in recognition for his fundraising would be rescinded.
- The BBC has learned some of the women making abuse claims may seek compensation from the BBC and Stoke Mandeville Hospital. Child abuse lawyer Liz Dux said she had been contacted by several women in the past few days who had been patients at Stoke Mandeville.
- Former TV presenter Esther Rantzen and ChildLine founder has denied claims made in The Sun newspaper that she had been warned about Sir Jimmy back in 1994.