The decisions follows several meeting that the Prime Minister"s Office has held with senior Mines Ministry officials to check illegal mining.
The commission has been asked to submit its report within 18 months after monitoring the progress of State governments like Karnataka in checking the menace, the sources said.
The issue of illegal mining has been in the limelight from the past few months, especially in the mineral rich States like Karnataka, Orissa and Jharkhand.
The Union Mines Minister B K Handique has written to Karnataka Chief Minister B S Yeddyurappa on four occasions since Nov 2009, extending help to central agencies like CBI to curb illegal mining.
However, the central government is also preparing a new Mines Act which has a separate section that seeks to put an end to illegal mining.