The Parliamentary Commissioner for the Environment has announced there will be an official investigation into fracking.
Fracking involves fracturing rock formations, using high pressure water and chemicals to release so-called "tight" oil and gas.
The controversial practice, which has been used in Taranaki for the past 20 years, has been banned in some countries because of environmental concerns.
A recently released report by the Taranaki District Council shows some 41 exploration wells used fracking techniques between 2001 and 2011.
Parliamentary Commissioner for the Environment, Dr Jan Wright, said preliminary work done indicated there is a need to examine the issue more closely.
"The work that has been done by my office thus far shows a substantive case for an official investigation under the Environment Act.
"Over the next few months my staff and I will conduct this investigation and produce a report to Parliament.
"I realise this is a hugely contentious issue and I would hope to have a report tabled in the House before the end of this year."
Energy and Resources Minister Phil Heatley welcomed the announcement.
"I look forward to the results of this inquiry. It will enable us to move forward with confidence and a clear understanding of what's fact and what's fiction," Mr Heatley said.
"This inquiry will enable us to consider all our options around fracking, from the consenting process through to work in the field.
"And the inquiry is timely - it aligns well with other current major developments in the sector, such as the review of the Crown Minerals Act and the block offers exploration process now under way."
Green Party MP Gareth Hughes called for a halt to fracking in Taranaki while Dr Wright carried out her inquiry.
"Until she can assure the public that it is safe, Government should implement a nationwide fracking moratorium."
Mr Hughes said fracking has been linked to drinking water contamination, health problems and earthquakes.
Seven of the 10 countries to introduce the practice had since enacted regional or nationwide moratoriums, he said.