Scotland Yard says the investigation is looking into historic child abuse allegations at a London guest house.
Thursday's announcement came after opposition Labour Party lawmaker Tom Watson claimed last year that there was evidence that a member of a pedophile ring boasted about his connections with a "senior aide to a former prime minister."
Watson suggested that at the time there was a "pedophile network linked to Parliament" and Downing Street. He urged police to reopen evidence files to reexamine and follow up the leads.
Police said that initial findings have turned up enough to begin a criminal investigation.