The central government's top anti-corruption agency said yesterday it was investigating Song Lin, chairman of the state-owned conglomerate China Resources Holdings.
The announcement came two days after journalist Wang Wenzhi accused Song of having a mistress, Helen Yang, who worked at investment bank UBS in Hong Kong and of using her to launder large amounts of money from allegedly corrupt deals.
Song was "suspected of grave violations of discipline and law", according to a statement on the website of the Central Commission for Discipline Inspection.
A person familiar with the case said Song was detained yesterday morning in Shenzhen.
Song, 51, said in a statement on Wednesday he would take legal action against those who were libelling him and denied the allegations made by Wang, a reporter at a newspaper controlled by Xinhua.
"These allegations are pure fabrication and vicious defamation," he said in the statement on his company's website.
Wang accused Song in July of deliberately overpaying for an acquisition in Shanxi province that led to a serious drain of state-owned assets. Song denied this at the time.
The Post reported yesterday, citing two sources familiar with the matter, that Yang, also known as Yang Lijuan, has responsibilities including liaison with state-owned enterprises.
Wang could not be reached for comment. But he told the South China Morning Post before the investigation was announced into Song that he was optimistic action would be taken.
He said his report was a response to the Communist Party's call for zero tolerance on graft.
A statement by China Resources said: "We will fully co-operate with the investigation … and continue our daily operations."
Part of the recent government anti-graft campaign has focused on officials with ties to the coal-rich province of Shanxi, with many senior cadres from the region stepping down over the past few months.
Song is the second vice-ministerial level official to have been placed under investigation in the past year after being openly accused of crimes by journalists in their personal capacity.
Liu Tienan, former deputy chief of the National Development and Reform, Commission, was removed from his post in August last year.