Golfhill Nursing Home, in Dennistoun in Glasgow's East End, is run by Advinia Healthcare, which confirmed a "large scale" investigation was taking place.
A report by the Crown Office, published in April, showed Golfhill care home recorded 11 deaths related to coronavirus, among the highest rates.
The Care Inspectorate investigation is said to have followed "months of complaints" about sub-standard and unsafe conditions at the home, including residents being admitted to hospital suffering from dehydration.
The problems are said to centre on the intermediate care unit, where elderly residents are transferred after being discharged from hospital, requiring a higher level of care and remaining there for around a month before being sent home or into long-term care.
According to a source, the unit has been short staffed "almost on a daily basis" because employees were being transferred to other areas of the home.
"The contract states that the unit has one registered nurse and four carers,” the source told the Herald.
"This has been abused and frequently staff are taken from the unit and sent to one of the other three units in Golfhill to cover sickness, leaving the intermediate unit short almost daily.
"The contract also states that agency nurses are not used in Dennistoun as the residents sent there are acute. Again this does not happen.
"There have been numerous episodes of poor care."
The source added: "Despite social work and the Care Inspectorate receiving complaint after complaint from myself and other unit managers, other health professionals and relatives, they have now decided that the unit should stay open.
"These residents are at the mercy of poor decisions being made.”
In 2018, care assistant Annamaria McPadden, 36, who worked at Golfhill Nursing Home was convicted of behaving in a threatening or abusive manner after telling a colleague "let's drown the b***h" as they bathed an elderly resident.
McPadden, from Tollcross, Glasgow, was given a community payback order.
Regarding the investigation, a spokesman for Advinia Healthcare said: "The safety and wellbeing of our residents is our highest priority at all times.
"Like many care homes across the country, the home has faced challenges in terms of recruitment during the pandemic.
"We can confirm that the home is currently the subject of a large-scale investigation and we are co-operating fully with that process to ensure that the home meets all regulatory standards.”
A spokesperson for the Care Inspectorate said: "An inspection at this service in October raised concerns about the quality of care experienced by people and we identified five areas for improvement.
"A follow-up inspection was recently carried out and we found the service had made insufficient improvement on the concerns identified.
"Due to our continuing concerns we have now issued an Improvement Notice, which lists the improvements we must see.
"If we are not satisfied that swift and sustained improvement is made in the quality of care experienced by residents we will not hesitate to take further action.”