An independent inquiry will be held into the first minister’s handling of Carl Sargeant’s sacking, days before he was found dead.
First Minister Carwyn Jones ordered the inquiry amid mounting pressure, and shortly after Mr Sargeant’s family said a probe should start “immediately”.
The former communities secretary was being investigated over claims of “touching or groping”.
He is understood to have taken his own life on Tuesday.
A spokesman for the first minister said Mr Jones believes a senior QC should lead the inquiry to examine his “actions and decisions”.
Mr Jones had faced criticism for suggesting in remarks on Thursday that an inquiry should only be held if it was not possible for the AM’s family to get answers through an inquest.
The decision to hold an inquiry followed pressure from two north east Wales Labour MPs, Mark Tami and Ian Lucas, former local government minister Leighton Andrews and opposition parties.
Permanent secretary Shan Morgan, the Welsh Government’s most senior civil servant, is to contact the family to discuss who that person will be and the inquiry’s terms of reference.
But the first minister’s spokesman added: “It is our understanding that such an inquiry should not take place before the outcome of a coroner’s inquest – but we will take further advice on this matter.”
The inquest is due to open and adjourn on Monday.
Mr Jones had been criticised for how allegations against Mr Sargeant, who said before he died that he did not know the details of the claims, were handled.
Bernie Attridge, deputy leader of Flintshire council and a lifelong friend of Mr Sargeant, called the announcement a “major U-turn by Carwyn Jones, of which I welcome”.
“But I still feel, that now an independent inquiry has been set up, that he should step aside,” he added.
Mr Andrews welcomed the announcement, saying: “I am glad an independent inquiry is to address the multiple questions that remain.”
Mr Lucas also welcomed the inquiry, as did Cardiff Central AM Jenny Rathbone.
Welsh Conservative leader Andrew RT Davies said he was “grateful” for the announcement but said it was “regrettable” that it was not made in Thursday’s statement.
Mr Davies has also asked for an investigation into allegations made by Mr Andrews of a bullying culture in Welsh Government.
The first minister previously said he would be open to scrutiny over how he sacked the AM for Alyn and Deeside from his Welsh Government cabinet job on Friday.
Analysis by Nick Servini, BBC Wales political editor
Carwyn Jones is certainly a man being led by events.
The fact that he failed yesterday to address any of the serious questions that have been raised over the past few days has only increased the pressure on him.
He clearly felt it was inappropriate to do so so close to the death with so many people still grieving for Mr Sargeant.
But the fact that Mr Sargeant’s family and friends want answers, and more and more of them have been saying so publicly today, meant Mr Jones did not really have much choice but to announce the inquiry.
The first minister will certainly be hoping this will take at least some of the pressure away after a phenomenally intense week for him and his government.
Mr Sargeant had vowed to clear his name and following his death, his family claimed he did not receive “natural justice”.
The announcement from the Welsh Government was released minutes after a solicitor for the family said they were “deeply” concerned the first minister suggested that the answers the family seek should be dealt with in a coroner’s inquest.
They called for a “full independent inquiry” to “be established immediately” in consultation with the family.
“What a coroner’s inquest cannot determine or appear to be determining is the civil or criminal liability, to apportion guilt or attribute blame, or to be seen to apportion guilt or to attribute blame,” the statement read.
It added that an inquiry would determine the “reasons for the complete abdication of responsibility and duty of care that was owed to Carl”.