Inmates were moved between Wandsworth and Pentonville prisons
Claims that senior staff at two jails transferred difficult and vulnerable prisoners before visits by prison inspectors are to be investigated.
The prisoners were moved between Pentonville jail, north London, and Wandsworth prison, south London.
The BBC understands that one inmate had a history of self-harm and later killed himself at Wandsworth in June.
Prisons and Probation Ombudsman Stephen Shaw will investigate whether the transfer was linked to his death.
Prison sources have suggested the aim of the transfers was to show inspectors that there fewer vulnerable prisoners in each jail and to reduce the likelihood of unfavourable comments to inspectors, says BBC home affairs correspondent Danny Shaw.
The sources described the scandal as "unprecedented", our correspondent added.
He understands that one of the prisoners who was moved was 25-year-old Christopher Wardally.
Mr Wardally had previously harmed himself and on 12 June was found hanging in his cell at Wandsworth.
Justice Secretary Jack Straw said an investigation had been commissioned by Phil Wheatley, the director general of the National Offender Management Service, into information brought by Dame Anne Owers, the chief inspector of prisons.
The inquiry would examine "who proposed and authorised the transfers; the rationale for the transfers; and the circumstances of the actual transfers themselves and whether those transfers took place in line with policy requirements relating to the well-being of prisoners".
Mr Straw said: "It is neither policy nor acceptable practice temporarily to move prisoners during inspections."
A spokesman for Jack Straw added that the affair was "extremely serious" and "deeply concerning".
The Observer newspaper suggests that the investigation threatens the careers of senior Prison Service staff.
It has learned that several top-ranking employees at the prisons may face disciplinary action, it says..
Dame Anne is expected to make scathing criticisms of the regimes at the two prisons in two separate reports due to be published on Tuesday, the paper adds.
The inquiry into the transfer claims will report later in October.