The Driver and Vehicle Licensing Agency (DVLA) has denied selling millions of registration and vehicle records to Castrol for marketing purposes.
The oil company was using information held on a DVLA database for a controversial roadside advertising campaign. This has raised questions about the DVLA's handling of data.
Video cameras captured the registration number of cars travelling on five major routes in London. These numbers and Castrol's recommended oil products for the associated vehicles were then flashed on giant billboards.
DVLA data includes the make, year, engine size and model of vehicle, enabling Castrol to make recommendations for each car.
The DVLA forced Castrol to shut down the planned two-week advertising campaign on the fourth day after being alerted by the media.
That information may not used for direct marketing purposes, the DVLA said in a statement.
"As soon as we became aware that vehicle information had been used inappropriately, we contacted the organisation concerned to ensure this was stopped," the statement said.
The DVLA has also denied that it provided any information to Castrol or received any fee from the company in relation to the advertising campaign.
"We are urgently investigating the case," the DVLA statement said.
Privacy watchdog the Information Commissioner's Office said it would not be conducting its own investigation as no personal details are involved.
The DVLA does sell registration and vehicle information to five motor industry data providers for non-marketing purposes.
According to The Mail on Sunday, Castrol and the DVLA are blaming one of the data providers for passing the data to a third party in contravention of the rules.
Both companies are refusing to name the data provider responsible while the DVLA conducts its investigation.