The probe was ordered in the wake of allegations that the private company was given the in-principle nod by ignoring the bid of a public sector company and the clearing of the proposal involved serious procedural lapses.
The order issued by Chief Minister Oommen Chandy in this regard said a special vigilance team would be formed for the inquiry.
A release from Chief Minister's Office said the previous government had given in-principle nod to the company through a letter in April 2010 to mine iron ore over 406.45 hectares at Chakkittappara and 53.9303 hectares at Mavoor and 281.2250 hectares at Kokkoor, also in Kozhikode district.
It was also alleged that a Kozhikode-based businessman with interest in real estate was involved in seeking clearance for the project in gross violation of procedures involved.
The Congress party in the state had expressed resentment at the delay in ordering the probe.