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.
'Hindsight'The DoH said it would look at the role it had in appointing Savile to his post at Broadmoor. At the time it had responsibility for running the high security hospital but West London Mental Health NHS Trust has run the hospital 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.
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Child abuse lawyer Liz Dux explains the grounds for a compensation case
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 Freany, who was on the taskforce at Broadmoor with Savile, said it was set up by the Department of Health.
He said it was set up following a critical report which said patients were too institutionalised and not offered enough care at Broadmoor, which now houses only male adult patients. At the time children were allowed to visit relatives at the hospital but had to be accompanied.
Mr Freany 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.
Separately, in an interview with Channel 4 News, one former patient said Savile had a set of keys to Broadmoor.
Steven George, who was known as Alison Pink while at the hospital and has since had a sex change, said Savile's keys were gold in colour while the staff's were silver.
He said it was as if Savile were "some kind of god", adding: "What was he doing completely free in a top security mental hospital?"
The DoH could not explain what Savile's role involved and how much access he had to patients nor how he came to be appointed to the role. The DoH also declined to comment on whether Savile had keys.
"We have to wait for the police investigation to uncover the facts," a spokeswoman said.
"This issue dates back to the late 80s and will take time to gather all the facts."
'Confront events'The BBC is to hold two inquiries related to the growing number of allegations being made against Savile.
The first is into why a BBC Newsnight investigation into Savile, who died in October last year aged 84, was shelved last year. It will start straight away.
The other into whether culture and practice at the BBC at the time enabled Savile to carry out the sexual abuse of children will wait for police go-ahead.
Director general George Entwistle said the inquiries - commissioned by the BBC Executive Board - would be chaired by independent external experts, whose names would be announced next week.
During a press conference on Friday, Mr Entwistle also made an apology to the victims, adding: "The BBC will not avoid confronting the events of its past to understand what happened and to try to ensure that nothing of this kind can happen ever again at the BBC. "
He also announced a third strand to the inquiries which will relate to sexual harassment at the BBC.
"Next week I will have news about how we will deal with allegations of sexual harassment. I will give you more details of this as soon as I have them. I remain confident our existing policies are working effectively to deal with any such problems today," he said.
Meanwhile, Conservative MP Rob Wilson said he written to the director general calling for an independent public inquiry into the dropping of Newsnight's investigation into Savile.
'Absolutely impossible'But in an interview on BBC Radio 4's Today Programme on Saturday, Sir Christopher Bland, chairman of the BBC board of governors from 1996 to 2001, said: "The rules of the BBC, the editorial independence... are so strong that the idea that the programme was pulled because of intervention from on high is, I believe, absolutely impossible, but that has to be confirmed."
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.
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In a separate development, the University of Bedfordshire said an honorary award it gave Savile in 2009 would be rescinded.
The university said the award was made "in recognition of his charitable fundraising" and was given "in good faith... without the knowledge of the current very serious allegations".
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, who said she had been contacted by several women in the past few days, said: "The case would be against the BBC or the hospital because essentially they would be held vicariously liable in law for the acts of someone like Savile who was acting as their agent.
"That's particularly the case where they might have had suspicions about what was going on. Their duty of care is heightened if there was that degree of foreseeability."
The BBC said it would not be able to comment on the claims while the police investigation was ongoing.
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