The World Taekwondo Federation will hold a review into British Taekwondo's selection process for London 2012.
The WTF will examine whether the decision to pick Lutalo Muhammad ahead of world number one Aaron Cook for the Olympics has broken its code of ethics.
"The manner of the selection is bringing our sport into disrepute," WTF secretary general Jean-Marie Ayer said.
However, the WTF does not have the power to change the decision of the British Taekwondo selection panel.
Cook, 21, is considering legal action into the decision to select Muhammad, currently ranked 59 in the world.
The GB Taekwondo selectors were asked to meet again on Wednesday by the British Olympic Association to consider their decision.
The meeting was held in the presence of an independent observer and for the third time the body put forward Muhammad instead of Cook.
"We are extremely disappointed by the way in which British Taekwondo's selection process has been conducted and it is clear that the lack of a conclusive rationale has caused confusion," Ayer said.
He said the "perceived lack of transparency" was damaging the sport's image "among the UK media and major Olympic stakeholders".
"Up until now, the WTF had hoped that this matter could be resolved internally at British Taekwondo," he added.
"This review will not have the power to alter British Taekwondo's decision, but it will determine whether any rules of the WTF ethics code have been broken."
The four-strong British Olympic Association's Qualification Standards Panel, which includes BOA chief executive Andy Hunt and performance director Sir Clive Woodward, were due to meet on Thursday to consider British Taekwondo's decision.
However, the panel has now decided to consult with the WTF and the BOA board of directors on Friday.
"The panel will make its decision as quickly as possible thereafter," said the BOA.
Cook's coach Patrice Remarck (seen in video above) has called for greater transparency in the Olympic selection process of national federations.
"I think the WTF, the BOA, UK Sport and the IOC need to set clear guidelines to organisations for when we select athletes. We have to focus on objectivity, and on results," he told BBC Sport.
"It is totally wrong - they [British Taekwondo] have used their guidelines and they have come out with the wrong result," he said.
"I think Lutalo has a lot of potential, but I think Aaron is just superior. He has the results to back it up, and he has the world number one ranking."
Asked if the WTF's intervention is "embarrassing", UK sports minister Hugh Robertson replied: "The answer to that is yes, because you would rather not see our sports getting criticised by their international federations."