Former FBI Director Robert Mueller has been named special prosecutor into alleged Russian links to President Donald Trump's election campaign.
The US Justice Department said the investigation would cover "Russian government efforts to influence the 2016 presidential election, and related matters".
Deputy Attorney General Rod J. Rosenstein said the appointment did not mean crimes had been committed, or that any prosecution was warranted.
"I have made no such determination. What I have determined is that based upon the unique circumstances, the public interest requires me to place this investigation under the authority of a person who exercises a degree of independence from the normal chain of command."
Mr Trump said the probe would show there was "no collusion" between his campaign and a foreign power.
"As I have stated many times, a thorough investigation will confirm what we already know - there was no collusion between my campaign and any foreign entity," he said in a statement released by the White House.
"I look forward to this matter concluding quickly. In the meantime, I will never stop fighting for the people and the issues that matter most to the future of our country."
Pressure has been building on Mr Trump over the Russia issue since his firing last week of FBI chief James Comey, who had been leading a federal probe into the matter.
Mr Comey's sacking causing an outcry in Washington, with some accusing the president of trying to stifle the probe into alleged Russian interference.
According to CBS News, the role of the special prosecutor carries public service service protections and Mr Mueller will not be able to be fired by the president.
The CIA and FBI said earlier this year that Russia interfered in the US election, aiming to undermine confidence in the electoral system and affect the outcome with a "clear preference" for Mr Trump to win. Moscow has denied the intelligence agencies' conclusion it meddled in the campaign.
The Attorney General's order authorises the Special Counsel to prosecute any federal crime arising from the investigation.
Read the Attorney General's order here
Mr Rosenstein said a special prosecutor was needed because of the "unique circumstances of this matter".
"I determined that a Special Counsel is necessary in order for the American people to have full confidence in the outcome. Our nation is grounded on the rule of law, and the public must be assured that government officials administer the law fairly."
Mr Mueller, 72, was decorated as a Marine Corps officer during the Vietnam War. A former federal prosecutor, he is known for his tough, no-nonsense managerial style. Appointed by Republican President George W. Bush, he became FBI director one week before the Sept. 11, 2001, attacks.
In 2011, he was asked by Democratic President Barack Obama for two more years, before being replaced by Mr Comey in 2013.
He will resign from his private law firm to avoid any conflicts of interest with firm clients or attorneys, Mr Rosenstein said.
- Reuters / RNZ