The Jeremy Corbyn-supporting group Momentum is being investigated by the Electoral Commission over spending during June’s election.
Officials will look into whether the grassroots campaign group, which evolved from Mr Corbyn’s successful Labour leadership bid in 2015, breached spending rules.
Momentum were a registered non-party campaigner at this year’s snap General Election, with the Electoral Commission to investigate the organisation’s activities in the run-up to the vote.
They will look at whether or not Momentum broke spending limits; failed to include accurate donation information; submitted an incomplete statement of payments; and did not disclose all invoices for payments of more than £200.
But the Electoral Commission said there is a possibility their investigation could also identify other potential rule breaches.
Bob Posner, the Electoral Commission’s director of political finance and regulation, said: “Momentum are a high profile active campaigning body.
“Questions over their compliance with the campaign finance rules at June’s general election risks causing harm to voters’ confidence in elections.
“There is significant public interest in us investigating Momentum to establish the facts in this matter and whether there have been any offences.
“Once complete, the Commission will decide whether any breaches have occurred and, if so, what further action may be appropriate, in line with its enforcement policy.”
Under UK law, non-party campaigners are limited to spending £31,980 in England; £3,540 in Scotland; £2,400 in Wales; and £1,080 in Northern Ireland over the course of a year.
They can only spend above these limits if they have the authorisation of the political party they are promoting.
If authorised, any spending by the non-party campaigner would then count towards the party’s national spending limit.
Sky News understands Labour did not authorise Momentum as a campaign group ahead of the General Election.
Commenting on the Electoral Commission investigation, a Momentum spokesperson said: “Momentum put a lot of effort and resources into detailed budgeting and financial procedures during the election to ensure full compliance.
“Our election campaign was delivered on a low budget because it tapped into the energy and enthusiasm of tens of thousands of volunteers across the country.
“Much of the Electoral Commission investigation refers to administrative errors that can be easily rectified.
“We have a good working relationship with the Electoral Commission, and will fully comply with the investigation going forward.”
On its website, Momentum boasts of having more than 150 local groups, 23,000 members and 200,000 supporters.
But the left-wing group have been accused of a systematic takeover of Labour through attempts to purge more centrist MPs and councillors.
At the weekend, Labour’s former deputy leader Roy Hattersley warned the party “faces the greatest crisis in its history” as Momentum nears “winning control” of Labour policy.