A senior Chinese journalist has told the BBC police knew UK man Neil Heywood had been murdered in Chongqing last November and that a cover-up began immediately.
Police panicked when they realised the case could be linked to top politician Bo Xilai and his wife, Gu Kailai.
It was only this month that authorities named Ms Gu as a suspect and promised an investigation.
Bo Xilai has been sacked, amid China's biggest political scandal in decades.
The British businessman 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 Mr Bo, the journalist told the BBC's Martin Patience in Chongqing.
Three of the investigators asked to resign out of fear. It was at this point that ex-police chief Wang Li Jun became involved, the source said.
In January, Mr Wang told his boss Mr Bo 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 Ms Gu and Zhang Xiaojun, an orderly at Mr Bo's home, have been arrested. Mr Bo is also under investigation for ''serious discipline violations''.