Scott Morrison has refused to stand aside Angus Taylor while police look into the origin of a fraudulent document the cabinet minister used in an attack on Sydney's mayor.
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The prime minister spoke to NSW Police Commissioner Mick Fuller after Labor raised the investigation during question time.
Police launched an investigation on Tuesday based on a reference from Labor, which accused the minister of forging a document.
"I take matters of ministerial standards very seriously," Mr Morrison told parliament on Tuesday.
"Based on the information provided to me by the commissioner, I consider there is no action required by me.
"The NSW police should now be left to complete their inquiries, which will be considered upon their completion."
A NSW police spokeswoman said the force was in the early stages of its investigation.
"Detectives from the state crime command's financial crime squad have launched Strike Force Garrad to investigate the matters and determine if any criminal offences have been committed," she told AAP.
Labor has called for Mr Taylor to be stood aside.
"They thought they'd stonewall the last couple of weeks of parliament, this strike force being established means that is simply untenable," Opposition Leader Anthony Albanese told reporters.
"Angus Taylor is a personification of the born-to-rule mentality that characterises the modern Liberal Party."
During question time, he repeatedly asked the prime minister what action he would take against Mr Taylor and sought support for a motion calling on Mr Morrison to step his cabinet colleague down.
He cited the ministerial standards, which say the prime minister can stand a member of his frontbench aside "if that minister becomes the subject of an official investigation of alleged illegal or improper conduct".
At issue are travel figures quoted in a letter Mr Taylor sent Sydney mayor Clover Moore, which he claimed were from the council's annual report.
The letter criticised Cr Moore for driving up carbon emissions by spending more than $15 million in council money on domestic and international travel, but the figures were false.
The 2017/18 council report currently available online, as well as previously cached versions, shows international out-of-pocket travel costs such as meals and taxis were only $1728, and domestic costs were $4206.
Mr Taylor has admitted the travel figures he cited were wrong but insisted the council had different versions of its annual report online.
"This is an outrageous accusation against me by the Labor Party," he told parliament.
"I reject absolutely the suggestion that I, or any members of my staff, altered the documents in question."
The minister has apologised to Cr Moore but has not explained where the numbers came from.
The Department of Environment and Energy's original draft of the letter for Mr Taylor didn't include any mention of the council's travel spend.
Mr Albanese said the figures were used to make a childish point about climate change.
"We don't know where it came from but we know that it was given to The Daily Telegraph by the minister's office," he said.
"Maybe it was the fairies in the garden or the goldfish in the ponds here or maybe it was just conjured up somewhere."
Australian Associated Press
