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The probe follows reports by Haaretz and NBCNews that Israel-based AnyVision's technology was used to surveil Palestinians living in the occupied West Bank.

The tech startup's Better Tomorrow, a so-called "advanced tactical surveillance" software system, allows users to identify individuals and objects as they appear in live camera feeds and then track them as they move between different feeds, NBC reported last month.

The software is allegedly used to power a powerful and secretive military surveillance project that watches Palestinians all over the occupied West Bank. AnyVision won the Israel's top defence prize last year.

M12, Microsoft's venture fund, participated in a $74 million series A investment round announced by AnyVision in June.

Microsoft announced its own facial recognition ethics principles last year, saying the company would "advocate for safeguards for people's democratic freedoms in law enforcement surveillance scenarios and will not deploy facial recognition technology in scenarios that we believe will put these freedoms at risk".

Former Attorney General Eric Holder will helm a team from law firm Covington & Burling to conduct the investigation, Reuters reported.

AnyVision has denied that its facial recognition technology has been used to surveil Palestinians in the West Bank, claiming that it is only used on Israeli border crossings and checkpoints.

Read more: Israel gives notorious West Bank checkpoint 'Orwellian makeover' 

One of the company's technology demonstrations, seen by NBC, shows that the facial recognition system has been used to track suspects through occupied East Jerusalem.

The US media outlet also identified the Israeli start-up as being the recepient of last year's Israel Defence Prize. While AnyVision was not publicly named as the winner due to the classified nature of the surveillance project, members of the AnyVision team were seen accepting the prize for the company's "technological superiority and direct contribution to the prevention of terror attacks".

While AnyVision formally denies its alleged partnership with the Israeli military, the start-up has clear ties to the country's security and defence forces.

Tamir Pardo, a former head of Mossad, is on AnyVision's board of advisors, and the company's president, Amir Kain, is the former director of the security department of Israel's defence ministry.

Microsoft markets its own facial recognition technology, but backed a US Senate bill on Thursday which would require a court order before such technology is used by law enforcement for ongoing surveillance.

Holder's investigation could lead the global tech giant to its ties with AnyVision.

"Microsoft takes these mass surveillance allegations seriously because they would violate our facial recognition principles," a Microsoft spokesman told NBC last month.

"If we discover any violation of our principles, we will end our relationship."

While AnyVision has publicly insisted that its technology follows Microsoft's ethics principles, former employees who did not wish to be named have denied the claims.

Israeli spyware company NSO Group has also been widely criticised for allegedly selling its Pegasus software to authoritarian governments across the world.

The spyware has reportedly been used to hack the phones of Saudi and Emirati dissidents, among others.

Amnesty International earlier this year launched a legal case against the Israeli government for allowing NSO Group to export the technology to countries whose governments are widely accused of rights violations.

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