On Sunday thousands of Indian students joined a protest in Melbourne demanding better protection and tougher police action against assailants, saying the attacks were carried out by racist gangs.
The protest ended with clashes early on Monday as police moved to evict protesters who had blocked key intersections of the city.
Protests have also taken place in several Indian cities, with some calling for the Indian government to label Australia an unsafe destination for students.
Australian police officials have said that while there may have been racial motivation to some of the attacks, most were believed to be opportunistic crimes.
|Indian students said the authorities were not taking their complaints seriously [AFP]
In one case an Indian student was badly wounded after he was stabbed in the face with a screwdriver.
He remains in serious condition in a Melbourne hospital.
The issue escalated into a diplomatic issue last week when Manmohan Singh, India's prime minister, expressed concern over the attacks to his Australian counterpart, Kevin Rudd.
More than 90,000 Indian students are studying at Australian universities and student representatives say they contribute millions of dollars to the Australian economy.
Announcing the inquiry, the government said the investigation would be led by Duncan Lewis, the National Security Advisor, and would included immigration, judicial and foreign affairs officials.
In a separate announcement Rob Hulls, the attorney-general in Victoria, said hate crimes would be made an offence as the state government cracked down on violent crimes against Indians and other targeted groups, including homosexual men.
Judges in sentencing would have to take into account "hatred for or prejudice against a particular group of people", Hulls said, according to The Age newspaper.