The Mainland Affairs Council (MAC), Taiwan's top China policy-making body, said the cabinet had requested a multi-agency investigation during a meeting on security issues posed by TikTok earlier this month.
The case was also forwarded to prosecutors for investigation after a local company allegedly engaged in business activities in Taiwan on behalf of ByteDance, TikTok's Chinese parent firm, MAC said without elaborating.
Chinese internet and social media platforms are banned from operating businesses in Taiwan under local laws.
ByteDance said on Monday it had no presence in Taiwan.
"The company has not established any legal entities in Taiwan."
TikTok is available in Taiwan but is not especially popular.
The Taiwanese newspaper Liberty Times reported on Monday that the subsidiary under investigation was a company set up in 2018 that changed its name to ByteDance Taiwan Ltd Co in November.
Taiwan has long warned that it is on the receiving end of huge Chinese disinformation and espionage campaigns.
It has ramped up scrutiny of Chinese businesses in recent years and imposed investment rules on various key sectors, including the island's state-of-the-art semiconductor industry.
MAC described TikTok as a security risk.
"In recent years, China has used TikTok and other short videos to conduct cognitive operations to infiltrate other countries," it said in a statement late on Sunday.
"There is also a high risk of users' personal information being collected for the Chinese government," it said.
China's authoritarian Communist Party claims democratic and self-ruled Taiwan and has vowed to one day seize it.
Relations between Beijing and Taipei are at their worst in years.
Beijing has increased military, diplomatic and economic pressure on the island since Tsai Ing-wen became Taiwan's president in 2016 because she views the island as a sovereign nation and not part of "one China".
Taipei has also accused Beijing of stepping up so-called "grey zone" threats, from warplane incursions into its air defence zone to cyberattacks and cognitive warfare.
TikTok denies being a security risk or that it is beholden to Chinese authorities.
However, the company has come under increasing pressure and scrutiny within Western nations, especially in the United States, over its Chinese ownership.
US senators voted unanimously last week to ban the video-sharing app on government phones, part of a growing bipartisan crackdown on TikTok.
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