Lim remains in hospital on Wednesday after being arrested on Tuesday at the Queen Victoria building in central Sydney.
Lawyer Chris Murphy shared video of Lim, 78, being thrown headfirst by two officers onto the ground during the arrest as a witness gasped.
Police handcuffed Lim then reversed the arrest after noticing his injuries.
Lim was taken by paramedics to St Vincent's Hospital and diagnosed with internal skull damage, Mr Murphy later said on Twitter.
He has since been diagnosed with a subdural hematoma and remains in hospital awaiting further tests on Wednesday.
Police said officers issued Lim with a move on direction after he declined to leave the Queen Victoria building when asked.
"The man's arrest was discontinued after he struggled with police and sustained an injury to his cheekbone," police said on Tuesday.
Lim's arrest was set to be investigated internally as a complaint, NSW Police said.
That investigation was to have been overseen by the independent Law Enforcement Conduct Commission.
However, an independent review into the incident has now been established, Deputy Premier and Police Minister Paul Toole told AAP.
"I have spoken with the Police Commissioner, who has advised me an independent review has been established to examine the actions of police during the arrest of Mr Lim," Mr Toole said on Wednesday.
"I will await the findings of that review, and wish him a full recovery."
The arrest was called disturbing by National Criminal Justice spokesman for the Australian Lawyers Alliance Greg Barns, who said the use of force was excessive, considering Lim was in his seventies.
"How much has police culture changed in relation to dealing with street policing?" Mr Barns said.
"Police every day encounter vulnerable people - they encounter homeless people, people with mental illness.
"To be treated in this way ... is deeply disturbing."
Mr Barns said Lim also deserved better than an internal review, and NSW had a history of police misconduct being whitewashed as officers were charged with minor offences.
"It's intolerable that police should investigate this themselves through an internal review."
The aborted arrest was condemned by the NSW Greens, who said it was a violent response to a non-violent protest and called for a snap protest at Surry Hills Police Station.
"The actions by the NSW Police yesterday were completely out of line and an indication of just how dangerous new police powers are to the vulnerable in our society," Greens MP Sue Higginson said on Wednesday.
"This type of violent arrest can happen to anyone, anywhere."
Ms Higginson said the Greens had written to Mr Toole and NSW Police Commissioner Karen Webb seeking assurances there would be an independent investigation.
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