A key component of batteries used in electric cars, the price of lithium reached new heights last year as demand for cleaner sources of energy surges.
China is one the world's leading producers of the metal, and the launch of the probe -- announced Friday on the local government's WeChat account -- could entail widespread mine closures and knock-on repercussions internationally.
Local officials say Yichun, in southeastern Jiangxi province, accounts for as much as 40 percent of China's domestic reserves of the lithium-rich mineral lepidolite.
That makes up about 10 percent of global lithium supply, according to Bloomberg -- resulting in the area's "lithium capital" nickname.
The alleged malpractice includes the "chaotic" extraction of lepidolite in the mining areas themselves as well as in surrounding natural areas by locals, domestic media outlet Caijing reported.
Authorities say unlicensed operations in the region have been causing serious problems such as environmental damage and traffic accidents involving mining trucks.
As part of the pending investigation, the duration of which is so far unclear, officials will look into violations and adopt measures that they hope will promote the "healthy development" of the industry, reported Caijing.
Beijing has been ramping up scrutiny of domestic mining operations in recent years, following decades in which lax regulation allowed small-scale private firms to extract huge amounts of resources with limited oversight.
Efforts by regulators have been targeted at adding "traceability" and "order" to the industry, with production increasingly concentrated in the hands of several state-owned rare earth extraction giants.
Yichun city officials have announced that they aim to propel the local lithium battery new energy industry to an annual value of 150 billion yuan ($21.5 billion) by 2025.
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