Prime Minister Scott Morrison has vowed to take whatever action is necessary after an investigation into cabinet minister Bridget McKenzie's grants scandal is complete.
The former sport minister is resisting mounting pressure to quit over a $100 million scheme to help sporting clubs upgrade facilities.
A damning auditor-general's report found the scheme favoured marginal and targeted seats.
Mr Morrison has referred the issue to Department of Prime Minister and Cabinet secretary Philip Gaetjens to see if ministerial standards were breached.
The prime minister said there was no deadline for the secretary's report.
"I'm not going to prejudice the outcome of that report, I think that would be unfair to that process and to the secretary," he told reporters in Canberra on Thursday.
"I'll let him do his job and then I will look at that advice and take whatever action is necessary."
The auditor-general found Senator McKenzie ignored Sport Australia's advice on which organisations should get grants, with 73 per cent of the projects not recommended by the agency.
Despite immense pressure to quit her senior cabinet role, Senator McKenzie is digging in.
"The minister is not resigning. She is actively engaging in the process and is confident there has not been a breach in ministerial standards," a spokeswoman for the deputy Nationals leader said.
Mr Gaetjens' investigation will include looking into a $36,000 grant given to a shooting club where Senator McKenzie is a member.
The minister did not disclose her membership on her register of interests, with her office arguing that was unnecessary because it was a gift worth less than $300.
Mr Morrison said the shooting club issue was "very, very different" to the broader controversy surrounding the grants scheme.
The prime minister dined with Nationals leader Michael McCormack - who decides the make-up of the junior coalition partner's frontbench - and Treasurer Josh Frydenberg at The Lodge on Wednesday night.
Mr Morrison referred the grants scheme to Mr Gaetjens on Friday but didn't make the decision public until Wednesday when revelations of the shooting club grant inflamed the issue.
Opposition Leader Anthony Albanese is trying to tighten the screws on Senator McKenzie and link the scandal to Mr Morrison's office.
"This abuse is rank. It stinks more than a bucket of prawn heads that you left out on a hot day like today. The stench goes all the way up to the government," he said.
"Bridget McKenzie needs to resign."
Labor is demanding full transparency about the process behind awarding the grants to find out why some sporting clubs missed out.
Mr Morrison distanced himself from the scheme.
"The matter and program was administered by the minister and Sports Australia, not the prime minister," he said.
Home Affairs Minister Peter Dutton dismissed suggestions Senator McKenzie should step aside during the investigation.
"We are not hanging people out to dry. We are not listening to the Twitter crazies. We are looking at the facts and we make decisions based on that," he told 2GB radio.
Australian Associated Press