It is believed the inquiry will look at whether the eurosceptic party accepted "impermissible donations" from a pan-European political party, the Alliance for Democracy in Europe (ADDE), to which Ukip is aligned.
The move comes after an audit compiled for the European Parliament's bureau, the inner circle comprising its President Martin Schulz and Vice-Presidents, alleged Ukip misspent tens of thousands of euros to fund its own electioneering and to help boost the Brexit campaign in the run up to the EU referendum.
The money was provided to the European political grouping (ADDE), which is dominated by Ukip and was created by Ukip interim leader Nigel Farage two years ago.
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A European Parliament report, published this week, said that ADDE paid for polling in the UK between February and December last year, including pre-election surveys in Thanet South, and other Ukip target seats such as Great Grimsby, Thurrock, Rochester and Strood and Cardiff South and Penarth.
The money was also wrongly used for nine opinion polls ahead of the 2015 election and the EU referendum, the report claimed.
A statement issued by the Electoral Commission said: "ADDE and its affiliate IDDE, as with other European political parties and foundations, can receive grant funding from the EU.
"This funding can cover up to 85 per cent of the parties' eligible expenditure and be used for a range of activity, from administrative functions through to the campaign costs connected to European elections.
"It cannot, however, be used for a range of other specified purposes, including for the direct or indirect funding of national parties, election candidates and political foundations at either the national or European level."
The statement added: "The Commission has now opened its own investigation into Ukip to look at whether there has been any breach of UK election law. This includes whether any impermissible donations have been accepted by the party."
A Ukip source said, "Our lawyers have to look at this, but we're confident that we will be cleared."