According to a senior Chinese journalist, police knew British businessman Neil Heywood had been murdered in Chongqing last November and that a cover-up began immediately.
Police panicked when they realized the case could be linked to top politician Bo Xilai and his wife, Gu Kailai.
It was only this month that authorities named Gu Kailai as a suspect and promised an investigation.
Bo Xilai has been sacked, amid China’s biggest political scandal in decades.
Neil Heywood was found dead in a hotel in Chongqing on 15 November 2011. Local officials initially said he died of excessive drinking.
Police who arrived at the hotel immediately knew he was killed, and panicked after they realized the case was linked to Bo Xilai, said the journalist.
Three of the investigators asked to resign out of fear. It was at this point that ex-police chief Wang Lijun became involved, the source said.
In January, Wang Lijun told his boss Bo Xilai about the case. He was sacked and subsequently sought refuge at the American consulate in Chengdu, where he reportedly told US officials about the murder and sought to defect.
That sparked the biggest political scandal in China in years, ahead of a leadership change in Beijing due to get under way in October.
State media have reported that Gu Kailai and Zhang Xiaojun, an orderly at Bo Xilai’s home, have been arrested. Bo Xilai is also under investigation for ”serious discipline violations”.