The Competition and Markets Authority (CMA) has been asked to conduct an urgent review into whether a 5p fuel duty cut is being passed on quickly enough to British drivers.
Business Secretary Kwasi Kwarteng has urged the regulator to examine the fuel market.
In a letter to CMA chief executive Andrea Coscelli, he said: "Drivers should be getting a fair deal for fuel across the UK.
"Healthy competition between forecourts is key to achieving this, with competition working to keep pressure on prices.
"I am writing to you to ask that the CMA conduct an urgent review of the fuel market, as well as a longer-term market study under the Enterprise Act 2002, to explore whether the retail fuel market has adversely affected consumer interests.
"This should consider the health of competition in the market, geographical factors - including localised competition - and any further steps that the Government or the CMA could take to strengthen competition, or to increase the transparency that consumers have over prices.
"As part of this, I would be grateful for the CMA's advice on the extent to which competition has resulted in the fuel duty cut being passed on to consumers, and the reasons for local variations in the price of road fuel."
The Business Secretary has asked for an initial report by July 7.
The cost of filling an average family car has now hit a record £100.
Pump prices have been rising since Russia's invasion of Ukraine in February led to oil supply fears. Last week, the RAC motoring organisation said the cost of filling a 55-litre tank reached £100.27 for petrol and £103.43 for diesel.
The Petrol Retailers Association (PRA), which represents independent fuel retailers, told the BBC it "welcomed transparency regarding fuel pricing" and would co-operate with the CMA's investigation.
The PRA said its members passed on the 5p fuel duty cut after it was announced in March, but wholesale fuel prices have continued to rise since then. It has left retailers "operating on extremely tight margins", it added.
PRA boss Gordon Balmer said the association had requested several meetings with Mr Kwarteng "to explain how the fuel market works" but had not heard back.
"Our members have had to endure several (unfair) headlines in the press," he added. "Therefore, the news that the minister has contacted the CMA to conduct an urgent review of the fuel market is timely."
Jack Cousens, head of roads policy at the AA, said while the group welcomed the review, "more urgent action is needed".
"To relieve pressure at the pumps, we need an immediate 10p cut to fuel duty. That would help restore some balance ahead of the initial CMA findings due in early July."
Shadow Chancellor Rachel Reeves said: "We know that the market for petrol and diesel is not working properly, and even when the government reduced duty back in March it was not passed onto consumers."
The Liberal Democrats urged the Government to cut fuel duty in rural areas to help families bearing the brunt of record petrol prices.
Analysis of official figures by the party suggests households in rural areas pay £114 a week on transport costs - almost £40 more than those in urban areas.
Four in 10 drivers are reported to be exploring ways to reduce costs by changing vehicles.