The sale of the former Poplar Town Hall is to be referred to the District Auditor after more than 30 councillors voted in favour of an emergency motion this week.
The investigation comes after reports that the building, currently used as offices, has been granted a “change of use” permit for a luxury Dreamstar hotel.
The 19th century listed building was sold in 2011 for £876,000, but objecting councillors argued that the change of use considerably raises its value.
Speaking at a meeting on Wednesday, Councillor Peter Golds, Conservative member for Blackwall and Cubitt Town, compared the selling price to the price of a nearby three bedroom semi-detached house, recently sold for £585,000.
Questions were also raised as to whether the bidders were initially informed that the Council would consider a change of use of this type.
Golds said: “We need to know the details of the ultimate bidder; how the process was done. When, during the bidding process, was there any suggestion that the town hall couldn’t be given a change of use?”
It was also reported that the decision, made in July last year, was taken by the cabinet in private and without the consent of the strategic planning committee.
The emergency motion said: “It is entirely inappropriate to grant this change using delegated power, considering the public interest in the sale and the effect it would have on residents.”
However, Mayor Lutfur Rahman said: “All the information concerning the sale of Poplar Town Hall has been in the public domain for some time. There is no truth to any allegation of wrongdoing.”
He added that the decision was taken by council officers exercising delegated powers in accordance with the council constitution.
A report is expected to be presented before the full council on March 26.