Public Health England is to look into concerns about doctors having to pass names and addresses of suspected illegal immigrants to the Home Office.
It has launched a call for evidence on the policy at the request of the Department of Health and Social Care.
Health bosses have been accused of ignoring evidence migrants are being deterred from seeking medical help for fear of deportation.
But the health watchdog said it was a "serious risk" to public health.
Doctors and patient groups warned it was damaging trust in the health service and breaching patient confidentiality, in evidence last month to the Health Select Committee.
'Fear of deportation'
The committee was told one heavily pregnant woman had delayed seeing her GP for months - and some people were choosing to attend accident and emergency departments, where they are not required to give personal details.
The policy is part of Theresa May's efforts, launched when she was Home Secretary, to make it more difficult for illegal migrants to set up home in the UK.
The Home Office last year signed a Memorandum of Understanding (MoU) with NHS Digital to make doctors hand over non-clinical details of patients, including their last known address, date of birth and NHS registration details to immigration officials.
Some 8,000 people have reportedly had their details passed to immigration officials in this way.
The government argues the data is non-clinical and at the lower end of confidentiality.
But Sarah Wollaston, who chairs the health committee, wrote to NHS Digital last month to say the MoU had been signed without proper consultation and should be halted immediately for a review of confidentiality procedures.
The Tory MP told NHS Digital chief executive Sarah Wilkinson: "We now expect NHS Digital to take this opportunity to demonstrate that it takes its duties in respect of confidentiality seriously by listening to the concerns raised about the MoU and taking action accordingly.
"If it does not, we will expect to hold a further evidence session, where you will be required to provide a very much more convincing case for the continued operation of this MoU than has been presented so far."
NHS Digital is required by law to co-operate with the Home Office but it retains the right under the MoU to seek more information about requests for data and turn them down if "not satisfied that request is in the public interest".
Dr Wollaston said in her letter: "We do not believe that NHS Digital has fully considered and appropriately taken account of the public interest in maintaining a confidential medical service."
Launching the consultation, the Department of Health said there was evidence that "fear of deportation is a barrier to seeking care".
But it added: "There is currently however much less evidence about the impact of data-sharing arrangements and specific knowledge of those arrangements on deterring undocumented immigrants from seeking healthcare and treatment."
As a result, it has asked Public Health England to "undertake a review within two years of the impact on public health and health-seeking behaviour arising from the disclosure of personal data in relation to the investigation of criminal offences, including immigration offences".
Submissions to the review should be sent by 30 March.