The Otago Regional Council will search the area around Whare Flat and Three Mile Hill after an adult Bennetts wallaby was spotted in the area last week.
A video shot by Greg Wisnesky, and posted on social media, shows the marsupial hopping along the side of Whare Flat Rd near the bottom of Three Mile Hill before it turns and disappears into the bush.
Mr Wisnesky said it was the second time he had spotted a wallaby in the area, the first being about six weeks ago.
Council environmental monitoring and operations manager Scott MacLean said a full investigation into the incident had started. It would include ground inspections.
The council was concerned about wallabies being sighted anywhere in Otago, he said.
If the introduced species were to establish in the hills around Dunedin they would be very difficult to remove and could cause significant damage to the surrounding agriculture and biodiversity, Mr MacLean said.
Human interference was a possibility, though there was no evidence it had occurred, he said.
''We know that natural dispersal from the South Canterbury containment area has been occurring ... Dunedin is a long way from the other affected areas.''
Anyone caught in possession of a live wallaby could be fined up to $100,000 and/or sentenced to five years in prison.
Wallabies are classified as an unwanted organism under the Biosecurity Act.
It is not the first time a wallaby in the Dunedin area had been reported to the regional council.
Since 2011 there have been four other reported sightings - two near Swampy Summit, one on Merton Hill near the Silver Peaks and one near Flagstaff.
Both the regional council and Environment Canterbury have launched online mapping tools as another way for people to report sightings of the invasive species.
