The Department of Climate Change, Energy, the Environment and Water said on Friday a probe into the program would take place after public claims concerning the unofficial knackery near Wagga Wagga.
The investigation into the program, run by National Parks and Wildlife Service, followed allegations more than 250 wild horses were rehomed to a person linked to the informal slaughterhouse, the department said.
Wagga Wagga City Council is leading a separate inquiry after more than 500 dead horses were found at "numerous separate dumps" at the property, including in a dry creek bed.
"Once the inspection of the property commenced it became clear that the slaughtering of horses had been occurring for a long period of time," the council previously said in a statement.
Rehoming of wild horses is part of the state government's management plan for Kosciuszko National Park, where there is a legislated target to cut the brumby population to 3000 by 2027.
Recent counts showed there were up to 22,500 horses in the park, officials have said.
Earlier in April, parts of the park were closed for six months as aerial shooting was used to cull brumbies after a surge in numbers during a period when rehoming was favoured.
The controversial shooting practice was shelved in 2000 over animal cruelty concerns.
Many scientists and conservation groups say wild horses are having a devastating impact on alpine ecosystems, while brumby activists oppose aerial shooting and back rehoming.
Invasive Species Council advocacy director Jack Gough said rehoming brumbies was assumed to be more humane than shooting but "the reality is very different".
"Horses that are rehomed go through enormous stress and are often injured in the process," Mr Gough told AAP in a statement.
"Many of them are so stressed or sick or injured from this process that they have to be shot anyway."
He said few people had the skill to break in feral horses, leaving many of the animals with nowhere to go given "the low number of rehoming options that meet welfare standards".
The departmental probe, requested by NSW Environment Minister Penny Sharpe, will commence next week with a report due by June 14.
Asked for comment, Ms Sharpe's office referred AAP to a statement that said the government took the "alarming reports very seriously".
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