District Magistrate S A Murugeshan ordered the inquiry recently when the matter came to his notice during a routine meeting with officials of 'Swajal' project.
Sawar village was selected for the project seven years ago.
The upper part of the village, where the source of water is available, is inhabited by Dalits while the families belonging to the upper castes live in the lower part.
Initially, it was planned that the storage tank would be built near the source of water. The plan, however, was changed following the opposition by the upper caste families which wanted the water tank in their area.
Later, a separate scheme was implemented for the dalit section of the village.
Taking a serious note of the reports, Murugeshan said the officials who approved the discriminatory plan on the basis of the castes for Sawar would not be spared.