The probe was ordered by Chief Minister Yogi Adityanath after a review late Friday night of the Cane Development and Sugar Industry Department.
He said that nobody can be allowed to sell such government properties at "dirt cheap rates" as the property belonged to the people.
Adityanath also said that he will not hesitate in ordering a Central Bureau of Investigation (CBI) probe into the matter, in which even the Comptroller and Auditor General (CAG) has pointed out heavy irregularities.
The Rs 1,180-crore scam has been hanging heavy on the former Chief Minister Mayawati but it was put in cold storage by the earlier Akhilesh Yadav-led Samajwadi Party government.
Despite serious lapses coming to light in the probe ordered then, the SP government chose not to act against political rival and Bahujan Samaj Party chief Mayawati in the sale of these sugar mills.
The mills belonged to the UP State Sugar Corporation Ltd and the state Sugar and Cane Development Corporation.
Complaints made on the scam alleged that huge kickbacks were paid to the "powerful" in the then BSP government to get the sale deal through.
Former Chief Minister Akhilesh Yadav had handed over the probe into the alleged irregularities to the Lokayukta in November 2012, but despite a year long drawn probe, Justice N.K. Mehrotra had not fixed responsibility for the loss to the exchequer on anyone.
The ombudsman had also recommended that the view of the government be presented before the Supreme Court where the matter was pending.