Indian general team manager Gurbir Singh said the team was co-operating fully with police.
"I can't make a comment except to say that we are co-operating with authorities in the village to the fullest and that we take the allegations very seriously," Mr Singh said.
"If the allegations are proven we will take the harshest possible action against the person involved."
Mr Singh said the man denied the allegation, and said the team was not fully aware of the circumstances surrounding it.
He said the 28 year old man denied he was alone in his room with the 16 year old girl and claimed that there were a number of women present at the time of the alleged assault.
"We are unable to assess what the truth is and we will have to go through the process to judge that," he said.
Victoria Police Chief Commissioner Christine Nixon confirmed the investigation at a press conference this morning.
Police have confiscated the accused man's passport, although he remains in the athletes' village, Ms Nixon said.