The human rights watchdog will investigate racial inequalities “laid bare” by the coronavirus outbreak.
The Equalities and Human Rights Commission will examine “the loss of lives and livelihoods” of people from different ethnic minorities.
This week a report found that people from ethnic minorities are at a higher risk of dying from coronavirus.
Equalities Minister Kemi Badenoch has said work is under way to find out the reasons for the greater risk.
However speaking in the House of Commons, she rejected claims that “systemic injustice” is the cause of ethnic minorities being more likely to die from coronavirus in England.
She also told MPs the UK was”one of the best countries in the world to be a black person”.
The Equalities and Human Rights Commission (EHRC) says its inquiry aims to address “serious issues that have yet to be fully answered” and will provide evidence-based recommendations.
Announcing the investigation, watchdog chair David Isaac said: “Now is a once in a generation opportunity to tackle long-standing entrenched racial inequalities.
“Only by taking focused action to tackle race inequality across Britain will we become a fair country in which every individual can reach their full potential.
“This inquiry is part of our long-term strategic approach to tackle the structural inequalities that the coronavirus pandemic has laid bare.”
The EHRC inquiry will be able to compel government departments to provide evidence to the inquiry and its terms of reference will be published in a few weeks, once race equality leaders have been consulted on the proposals.
This comes after thousands took part in marches protesting about racial inequalities.
The demonstrations were triggered by the death of George Floyd – an African-American man who died on 25 May when a white police officer continued to kneel on his neck after he pleaded he could not breathe.
On Tuesday, a Public Health England report found that the impact of coronavirus is “disproportionate” for Asian, Caribbean and black ethnicities.
It said if you strip out age and sex, people of Bangladeshi ethnicity have twice the risk of death than people of white British ethnicity.
People of Chinese, Indian, Pakistani, other Asian, Caribbean and other Black ethnicity had between a 10% and 50% higher risk of death when compared to white British people.
Responding to the report, Health Secretary Matt Hancock said “much more work” needed to be done to understand “what’s driving these disparities”.
Meanwhile, Met Police data revealed that a disproportionate number of ethnic minority groups were fined for alleged breaches of the lockdown in London.
Shadow women and equalities Marsha de Cordova welcomed the inquiry saying: “The coronavirus crisis has shone a light on these inequalities, but the government has consistently failed to take action to save BAME people’s lives during this pandemic.
“Now is the time to take steps to tackle systemic racism, discrimination and injustice in Britain.”
A government spokeswoman said further work with the government’s racial disparity unit will “develop our understanding and shape our ongoing response to coronavirus”.
“The government is committed to levelling up and spreading opportunity around this country. This will be a hugely important part of the economic and social recovery from the pandemic,” she added.