The Central Bureau of Investigation is expected to take over the inquiry into the Vyapam scandal from state police.
Vyapam is the Hindi acronym for an office that conducts examinations for government jobs and medical school admissions in the state.
The scandal involves thousands of arrests and many mysterious deaths.
Opposition parties have accused the BJP-ruled government in Madhya Pradesh of influencing the investigation and have been demanding a federal inquiry.
While ordering the inquiry, the Supreme Court judges criticised the Madhya Pradesh high court for refusing to take a decision on whether there should be a federal investigation into the scandal.
"Instead of taking a decision, the Madhya Pradesh high court washed its hands off [the case] and put the ball in our court," the judges were quoted as saying by the NDTV news channel.
The scandal involved leaking question papers, rigging answer sheets and hiring bright students as impersonators to sit for candidates, as well as selling medical school seats to the highest bidder. Anything between 1m rupees ($15,764; Â£10,168) and 7m rupees was paid for a seat, correspondents say.
Some 2,530 people have been accused in connection with the scandal since 2012.
Police have arrested about 1,980 people and 550 people are still being sought. Twenty courts in Madhya Pradesh are looking into 55 cases registered in connection with the scandal.
In a mysterious twist, some 33 people - mostly accused in connection with the scam - have died in the past two years, raising suspicions of foul play.  It is not clear how many deaths are linked to the scandal.
India's Supreme Court has ordered a federal inquiry into a massive medical school admissions examination scandal in Madhya Pradesh state.