Barely a year past his election into parliament, mining magnate Clive Palmer is officially under investigation for fraud by West Australian police.

The WA Major Fraud Squad have begun their investigation into allegations made by Chinese miner Citic; that Palmer spent $10 million of the company’s money on his election campaign and used a further $2.167 million for other purposes.

Palmer said the money was paid for services as per contract, and was in accordance with his commercial agreements with the company since 2001.

Chinese state-owned Citic claimed the money was deposited to cover costs of operating a port at Cape Preston for their mine tenements owned by Palmer’s mining company Mineralogy.

WA deputy police commissioner Stephen Brown said the investigation looked at materials from Citic Group to assess for any criminal activity.

“I can confirm that we have received materials on behalf of the Citic Group and we've commenced to assess those materials to determine whether there's been any criminal activity, as part of our normal fraud investigation and assessment process, and that's the only comment I will make on that matter,” he said.

Palmer has steadfastly denied the allegations, and accused WA premier Colin Barnett and Qld premier Campbell Newman of trying to discredit him, West Australian reported.

“Any allegations in relation to improper use of a trust are totally wrong,” Palmer said.

“These attempts to discredit me are politically motivated allegations, particularly from the likes of Campbell Newman in Queensland and Colin Barnett in WA.”

A civil case brought against Palmer by Citic will be heard tomorrow in Brisbane.

Earlier this year Palmer’s ranking on the BRW Rich 200 list fell from 16to 28, after losing nearly half of his $2.1 billion fortune of 2013.

In August Palmer referred to Citic as “Chinese Bastards” and “mongrels” on the ABC program Q&A, and accused them of taking $200 million worth of iron ore out of the country without paying.

The Palmer United Party (PUP) this week lost the membership of crossbench senator Jackie Lambie, marking the extent of Lambie's dissatisfaction with dealings between PUP and the Liberal Government.