The crash which left a grandmother dead and her young family seriously hurt will now be subject to a criminal investigation, and a probe by police watchdog the Independent Police Complaints Commission.
A man arrested shortly after the smash was last night helping police with their inquiries. Northumbria Police said the incident had also been referred to the IPCC, which investigates police forces.
The IPCC automatically investigates any crash involving a police car.
A Northumbria Police spokesman said: "The incident started at around 2.10pm when police responded to a report from a member of the public about being thrown out of their car.
"The silver Honda Civic was seen by a marked police vehicle in Westoe Road and followed for a short distance.
"It is known to have collided with two parked cars in Westoe Road. It then collided with pedestrians in Horsley Hill Road."
IPCC commissioner Nicholas Long said: "Our investigation will seek to establish whether any actions could have been taken to prevent this tragic death."