The case file of Jon Venables has been passed to the Parole Board, which will rule on whether he should be released from prison, a board spokesman said.
Venables, who killed James Bulger in 1993 with Robert Thompson, was recalled to custody last month for breaching the terms of his licence.
Reports have alleged he was found with child sex abuse images on his computer, but ministers have confirmed only that he faces "serious allegations".
The Parole Board process is likely to take many months. It will not be concluded until the end of any criminal proceedings against Venables, which take precedence.
The spokesman said: "The Ministry of Justice has today referred the case of Jon Venables to the Parole Board for us to review his continued detention as required by the Directions to the Parole Board under Section 32(6) of the Criminal Justice Act 1991.
"The Parole Board will now start the process of reviewing this case in the normal way.
"We are not able to set a timescale on the review, but will confirm when it has been concluded."
A three-member Parole Board panel of a judge, a member of the public and a psychologist or psychiatrist will be tasked with examining Venables' file.
They will look at his behaviour since he was released from prison in 2001, take evidence from the probation officers in charge of his case and also hear from members of the Bulger family.
The process will culminate in a hearing at which his case is scrutinised and a decision made on whether he no longer presents a risk to the public and can be let out.
