Gu Kailai, wife of Chinese Communist Party leader Bo Xilai, was arrested for suspected involvement in the murder of the UK businessman Neil Heywood.
Gu is a prominent lawyer and the second wife of the former politburo member Bo Xilai.
She was the first Chinese lawyer to win a civil suit in the US. She was a student of Peking University.
According to Xinhua, Gu and her son were involved in a conflict of interest with Heywood.
Heywood was found dead in a hotel room in Chongqing in November. Inital reports pointed to alcoholic poisoning.
"The existing evidence indicated that Heywood died of homicide. Gu Kailai and Zhang Xiaojun, an orderly at Bo's home, are suspected," Xinhua said.
Among the evidence being examined by investigators are reports by Chongqing deputy mayor and former police chief Wang Lijun who sought political asylum at the US consulate in February, according to Reuters.
Wang was working closely with Bo to crack down on organised crime and corruption at government.
Bo has been stripped of his positions as the politburo member and the member of the Central Committee for disciplinary violations. He had already lost his position as party chief of Chongqing.
"Comrade Bo Xilai is suspected of being involved in serious disciplinary violations," Xinhua reported.
Foreign secretary William Hague praised the investigation. "The Chinese are doing as we asked them to do and we look forward to seeing those investigations take place," he said.