Allen is accused of alleged "inappropriate communication" with a woman who is said to have received threatening emails from Paula Broadwell, who had an extramarital affair with Petraeus.
As a result of which, US President Barack Obama has agreed to put on hold the nomination of Gen Allen as the next commander of the US European Command. His confirmation hearing was scheduled for Thursday.
One of the most successful American commanders, Petraeus resigned as the CIA Director last week over the extramarital relationship. "Today, I directed that the matter be referred to the Inspector General of the Department of Defence for investigation, and it is now in the hands of the Inspector General," Panetta said.
"While the matter is under investigation and before the facts are determined, General Allen will remain Commander of ISAF. His leadership has been instrumental in achieving the significant progress that ISAF, working alongside our Afghan partners, has made in bringing greater security to the Afghan people and in ensuring that Afghanistan never again becomes a safe haven for terrorists. He is entitled to due process in this matter," said the US Defence Secretary.