Confirming the investigation, the Attorney-General's Department said the AFP would be investigating whether the search giant had breached the Telecommunications (Interception and Access) Act 1979.
Google Australia has also confirmed that it is in discussions with authorities over the matter.
A Google Australia spokesperson said the company had previously publicly admitted to collecting the data, but had said this had been done in error.
"This was a mistake for which we are profoundly sorry," the spokesperson said. "We are speaking to the appropriate authorities to answer any questions they have."
Speaking in the Senate on 24 May, communications minister, Stephen Conroy, attacked Google and accused the company of deliberately setting out to collect data.
"It is possible that this has been the largest privacy breach in history across Western democracies," he said. "After being caught out by European privacy commissioners, Google has admitted that their Street View cars--the ones that drive down your street and photograph your house without your permission so that they can make it available worldwide for use in their Street View product--has also been collecting information from people using Wi-Fi connections; that is, your personal data, including, potentially, emails."
Conroy said the Privacy Commissioner had written to the company on the matter and was now "engaged in a conversation". The Commissioner was also investigating the company for possible data breaches.
"Google have admitted to doing this and claim it was a mistake in the software code, meaning that it was actually quite deliberate; the code was collecting it," he said. "I am saying that they wrote a piece of code designed to do it."
Conroy also noted that Germany had referred Google's data collection to its criminal authorities.
Although Google missed the initial deadline set by German authorities to hand over the relevant Wi-Fi data, the search giant has since confirmed it will comply with demands.
The Australian Federal Police has also been contacted for comment.
