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The Archbishop of Canterbury is understood to be "furious" after the Church of England confirmed it invested indirectly in online lender Wonga.
It comes after the Most Reverend Justin Welby told Wonga the Church would try to force it out of business by helping credit unions compete against the firm.
But the Church later said it invested in funds that provided money for Wonga.
Lambeth Palace said an independent inquiry would be launched into how "this serious inconsistency" occurred.
The amount of Church money indirectly invested in Wonga was less than £100,000 out of investments totalling £5.2bn.
Payday firms offer short-term loans, often at high interest rates, and have been accused of leading people into more debt.
Last year, the Church placed such lenders on a list of unethical investments.
This week, Archbishop Welby told Total Politics magazine he had met Wonga boss Errol Damelin and had "bluntly" told him "we're not in the business of trying to legislate you out of existence; we're trying to compete you out of existence".
Mr Damelin, in response, said he was "all for better consumer choice".
But, after the archbishop's comments were widely reported, Financial Times journalists looked into the Church's own investments and discovered links with Wonga.
The paper reported that the Church's pension fund, which claims to explicitly ban firms involved in payday lending, had invested in US venture capitalists Accel Partners - a company that led Wonga fundraising in 2009.
According to BBC religious affairs correspondent Robert Pigott, the Church's investment is said to be removed from its immediate control by "several layers".
A Lambeth Palace spokesperson said in a statement the Church was grateful to the Financial Times for "pointing out this serious inconsistency of which we were unaware".
The palace said the Church would be asking the Assets Committee of the Church Commissioners, a statutory body independent from the Church, "to investigate how this has occurred and to review the holding in this pooled investment vehicle".
"We will also be requesting the Church Commissioners to investigate whether there are any other inconsistencies as normally all investment policies are reviewed by the [Church's] ethical investment advisory group."
Archbishop Welby, a former oil industry financial executive who sits on the Parliamentary Commission on Banking Standards, has previously lobbied for a cap on high interest rates charged by loan companies.
He told Total Politics the Church could do more to help non-profit lenders to compete with payday firms and said he had "a very good conversation" with Mr Damelin.
He said of the Wonga head's response: "He's a businessman; he took that well."
Mr Damelin later said: "There is mutual respect, some differing opinions and a meeting of minds on many big issues.
"On the competition point, we always welcome fresh approaches that give people a fuller set of alternatives to solve their financial challenges. I'm all for better consumer choice."
'Social good'
Earlier this month, Archbishop Welby launched a new credit union aimed at clergy and church staff. Credit unions charge their members low rates of interest to borrow money.
The BBC's Robert Pigott said the archbishop's plan was to go to some of the 500 independent loan companies and say to them "we will help you by letting you have access to our buildings and expertise".
Our correspondent said the Church would not run the companies but would help them and allow them to work on its premises.
"I think the archbishop would see this as a social good countering a social evil," he said.
Meanwhile, Business Secretary Vince Cable has backed the archbishop's plan to force Wonga out of business.
Mr Cable told Channel 5 News that the archbishop had "hit the nail on the head".
He added the archbishop was "right not just to condemn abuse but to offer alternatives which are more ethical."
"We're looking at whether we can stop advertising drawing people into payday lending who perhaps shouldn't be using it."
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