Home Secretary Theresa May announced the inquiry in Parliament today after a formal review found evidence suggesting that one of the detectives handling the murder case had acted corruptly.
May said a new criminal offense of police corruption will be proposed by the government due to the "profoundly disturbing" findings of the review.
She said existing laws are inadequate when dealing with serious police corruption.
An earlier review found in 1999 that the Metropolitan Police was "institutionally racist" in its response to the slaying.