Independent ethics commissioner Mario Dion said he would look into allegations, first raised by the Globe and Mail newspaper, that Trudeau officials last year had pressured Jody Wilson-Raybould, when she was the country's justice minister and attorney general, to help SNC-Lavalin avoid a trial over bribery and corruption charges linked to Libyan contracts.
"We welcome the ethics commissioner's investigation. ... It's extremely important that Canadians can continue to have confidence in our system," Trudeau told reporters in Vancouver.
Although Dion's office has only limited powers to sanction wrongdoing, the probe shows the affair may become more problematic for Trudeau as he prepares for a close-run re-election bid this October.
Wilson-Raybould was unexpectedly demoted last month and given the more junior post of veterans affairs minister, prompting speculation she was being punished for insisting the trial go ahead rather than allowing SNC-Lavalin to pay a fine.
Trudeau said he had "full confidence" in Wilson-Raybould, who has declined to discuss the matter.
Pollster Nik Nanos of Nanos Research said he did not think the allegations would immediately hit the Liberals' chances.
"One thing in isolation usually doesn't have a massive material impact on support. But if something else comes out that is similar to this ... that's the risk for the government," he said in a phone interview.
That said, there are signs of unhappiness. Liberal legislator Wayne Long said he was "extremely troubled" by the allegations and wanted a full and transparent investigation.
Wilson-Raybould's father, Bill, said on Facebook that she had been "demoted because she would not 'play ball' with the Big Boys who run the Liberal Party."
Opinion surveys by Nanos and others show the Liberals with only a slender lead over the official opposition Conservatives.
The leader of the Conservatives, Andrew Scheer, said in a newspaper editorial on Monday that Trudeau was "a fraud."
Last week Trudeau denied that his office tried to pressure Wilson-Raybould to make a deal with SNC-Lavalin, which faces fraud and corruption charges linked to allegations that former executives paid bribes to win Libyan contracts under Muammar Gaddafi's regime, which fell in 2011.
SNC has argued it should be allowed to avoid a trial because the executives accused of wrongdoing have left the company and it has overhauled ethics and compliance systems.
Justice Minister David Lametti told CTV on Sunday it was still theoretically possible he could direct federal prosecutors to drop the idea of a trial. One source with knowledge of the matter said it was not unusual for an attorney general to have "robust conversations" with colleagues as they gathered data in such situations.
But the source, who requested anonymity given the sensitivity of the situation, insisted there had been no interference in the SNC-Lavalin case.
Wilson-Raybould "is not someone who takes these issues lightly and she would not have stood for this had she thought people were trying to influence her in a way that was not right. ... She would have quit," the source said.
SNC-Lavalin is based in the politically powerful province of Quebec, where the Liberals need to capture more seats to have any chance of winning a second successive majority government.
The company cut its full-year profit forecast for a second time on Monday, citing a dispute with a client related to a mining project in Latin America. SNC-Lavalin shares were trading down 7.7 percent shortly before the market close.
(Reporting by David Ljunggren in Ottawa; Editing by Matthew Lewis and Leslie Adler)
By David Ljunggren