Gen. Allen linked to Petraeus scandal.
However, Gen. Allen will remain commander of the International Security Assistance Force (ISAF) for now, even as his next posting as head of European Command has been put on hold.
"While the matter is under investigation and before the facts are determined, Gen. Allen will remain commander of ISAF," said a statement from Panetta, who is currently on a three-nation tour of the Asia Pacific Region.
The Federal Bureau of Investigation (FBI) has uncovered as many as 30,000 pages of correspondence between Allen and Jill Kelley, a key figure in the scandal that led to the CIA chief's resignation.
On Sunday, FBI referred to the Department of Defense the matter involving Gen Allen, Panetta said. The commander is being probed for an alleged "inappropriate communications" with a woman receiving threatening emails from Paula Broadwell, who had an extramarital affair with Petraeus.
"Today, I directed that the matter be referred to the Inspector General of the Department of Defense for investigation, and it is now in the hands of the Inspector General," Panetta said, adding he had informed top Congressional leadership.
Allen is scheduled to appear before the Senate Armed Services Committee for a congressional hearing. "In the meantime, I have asked the president - and the president has agreed - to put his nomination on hold until the relevant facts are determined."
Recently, Allen was nominated as commander of the United States European Command and Supreme Allied Commander, Europe. He was scheduled to appear before the Senate Armed Services committee for its confirmation.
Obama has named Gen. Joseph Dunford, assistant commander of the Marine Corps, to succeed Gen. Allen. Dunford's confirmation hearing, however, will take place on schedule on Thursday.
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