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Two men have been arrested under the Official Secrets Act, the Met Police has confirmed.
The Sunday Times reported that one of the men, in his 20s, is a parliamentary researcher accused of spying for China.
It is reported he had links to several Tory MPs, including security minister Tom Tugendhat and foreign affairs committee chairwoman Alicia Kearns.
He and another man in his 30s were arrested in March, the Met said, with three addresses searched by police.
Several government sources declined to comment on security matters.
The Met said: “A man in his 30s was arrested at an address in Oxfordshire and a man in his 20s was arrested at an address in Edinburgh.
“Searches were also carried out at both the residential properties, as well as at a third address in east London.”
Both men were taken to a south London police station, and were subsequently released on police bail until a date in early October, they said.
The Met’s Counter Terrorism Command, which oversees espionage-related offences, is investigating.
It is reported the researcher, who worked on international policy, had access to Mr Tugendhat before he became security minister in September last year.
The man has not been named – but the Sunday Times said he had lived in China for a period.
Conservative MP Alicia Kearns declined to comment, adding: “While I recognise the public interest, we all have a duty to ensure any work of the authorities is not jeopardised.”
Reacting to the news, Tory MP Tim Loughton said: “This is yet further evidence of how far the tentacles of the Chinese Communist Party (CCP) reach into British institutions.
“Yet again the security of Parliament has potentially been compromised, reinforcing how we cannot view the CCP as anything other than a hostile foreign threat.”
And Conservative MP Iain Duncan Smith said it was “time for us to recognise the deepening threat that the CCP (Chinese Communist Party) under (President) Xi now pose”.
He also questioned the UK’s approach to China, after Foreign Secretary James Cleverly became the first senior UK minister to visit the country in five years last week.
“What price was Cleverly’s kowtow visit to Beijing?” Mr Duncan Smith added.