The move comes in the wake of a bungled four-year study into whether BSE was in sheep, which was found to be mistakenly studying cow brains.
The new project will be overseen by the government's chief scientific advisor, Professor David King.
The government hopes to discover in a week what went wrong with the BSE experiment at Institute of Animal Health laboratory in Edinburgh.
In the meantime, Prof King said the Food Standards Agency maintained there was no reason to avoid eating lamb.
He said there was a theoretical risk of BSE in sheep but no tests carried out so far had shown the disease.
He said 680 sheep had been tested and each of these showed scrapie symptoms but none had BSE.
"We have evidence that is gathering and beginning to mount up to satisfy all of us that hopefully there is no sign of BSE in sheep," told BBC Radio 4's Today programme.
Widespread slaughter
Initial findings that 1% of sheep might have BSE were explained when last minute tests showed that the brains being tested were in fact those of cows.
It has been reported that, but for the last ditch tests, the government was prepared to order a widespread slaughter within the national flock.
Ministers want the new project to find faster ways of searching for BSE-like diseases in sheep in order to reassure consumers.
Critics are appalled that after a four-year-study, the government is still no closer to answering concerns that BSE could have been in sheep for some time and mistaken for scrapie.
Prof King said he was confident scientists would be able to gather a significant amount of data using the new, sophisticated tests, which produce results within 48 hours.
Contamination claims
"While we are validating the test we only have one or two instruments conducting the tests so there is problem of remping up the capability to conduct the sort of numbers we need to be statistically certain that there is no BSE in sheep," he said.
Prof King said it would be months, rather than weeks, before the government could say for certain whether there was BSE in the national sheep flock.
Rural Affairs Secretary Margaret Beckett has fended off criticism that she tried to "bury" the original bungled project.
The scientist at the centre of the study has said that a government lab wrongly cleared samples from the study of contamination.
But Mrs Beckett says the government still has no reason to be embarrassed.