"President Olusegun Obasanjo has approved the constitution of a panel of enquiry to look into the circumstances of the disappearance on Monday night, 27th of March, of Mr Charles Taylor ... from his residence in Calabar," the presidency said in a statement on Tuesday.
Taylor had lived in exile in Nigeria since 2003, but Liberia and Nigeria have been at odds over what to do with him in a series of diplomatic exchanges over the past few weeks.
He is considered the mastermind behind once intertwined civil wars in Liberia and Sierra Leone, where he stands accused of supporting brutal rebels in exchange for diamonds.
Ellen Johnson-Sirleaf, the Liberian president, asked Nigeria to hand over Taylor to stand trial in Sierra Leone. Nigeria replied that the Liberian government was free to take him into its custody.
Human-rights groups had urged Nigeria to increase security around Taylor to prevent his escape, while the prosecutor of the Sierra Leone court had called for Taylor's arrest.
"The watching world will wish to see Taylor held in Nigerian detention to avoid the possibility of him using his wealth and associates to slip away, with grave consequences to the stability of the region," the prosecutor of Sierra Leone's war tribunal, Desmond de Silva, said on Sunday.
The West Africa wars led to mass
killings, mutilation and rape
De Silva said he had sent a message asking Obasanjo to arrest Taylor.
The Nigerian statement said the panel would investigate whether Taylor had escaped or been abducted and recommend sanctions against those responsible.
Obasanjo ordered the arrest of all security staff attached to Taylor, a separate statement said.
An international tribunal indictment says Taylor is responsible for the destruction of Liberia and Sierra Leone and for the murder, rape, maiming and mutilation of more than 500,000 Sierra Leoneans.
Each of the 17 charges he faces carries a sentence of life in prison.
Taylor also is accused of harbouring al-Qaida bombers who attacked US embassies in Kenya and Tanzania in 1998.