The National Crime Agency (NCA) is to head a new police investigation into abuse in children's homes in North Wales in the 1970s and 1980s amid claims that a senior Tory was among the perpetrators.
Home Secretary Theresa May said the agency's director general Keith Bristow would review the original police handling of the case as well as looking at the latest allegations by one of the victims.
"The Government is treating these allegations with the utmost seriousness," she told MPs in a Commons statement. "Child abuse is a hateful, abhorrent and disgusting crime and we must not allow these allegations to go unanswered."
In a further development, Downing Street said Mrs Justice Julia Wendy Macur, a High Court judge, would carry out the review of the original Waterhouse inquiry announced by David Cameron.
Mrs May said she would also consider Labour calls for a wider, over-arching inquiry into child abuse - including the allegations involving the late DJ and BBC presenter Jimmy Savile - if the evidence was shown to justify it.
However, Labour backbencher Tom Watson, who has raised claims of a past paedophile ring linked to No 10 and of a former Cabinet minister allegedly involved in child abuse, dismissed the latest moves as simply "the next stage of a cover-up".
The announcement comes after David Cameron said yesterday that he would be appointing a senior figure to review the original public inquiry into abuse at the home led by Sir Ronald Waterhouse, a retired high court judge, which reported in 2000.
The investigations follow renewed allegations last week by one of the victims, Steve Messham, who said the inquiry examined only a fraction of the claims of abuse.
He told BBC2's Newsnight that he was taken out of the Bryn Estyn children's home and "sold" to men for sexual abuse at a nearby hotel and that a senior Tory from the time was among the perpetrators.
In her statement, Mrs May warned MPs not to use parliamentary privilege to try to name the alleged suspect as it could jeopardise any future criminal trial.