Fears of a brewing mafia war have begun to grip Russia three weeks after a top mobster was killed, as rival clans seek control over his vast empire, including prime property in the Olympic host city of Sochi.

Rival clans are said to be eagerly eyeing property and businesses once overseen by Aslan Usoyan, better known by his mob name "Grandpa Hassan". Usoyan oversaw a vast empire that was particularly strong in Moscow and Sochi, the site of next year's Winter Olympics.

"Where there is money, there is organised crime," said Sergei Kanev, a veteran crime reporter for the newspaper Novaya Gazeta. "[Sochi] was his fiefdom. He considered it a second homeland."

Criminal interest in the city, long a favourite weekend destination of the president, Vladimir Putin, has grown exponentially since it won the right to host the Games, according to security sources. A senior Russian official said on Sunday that Russia would spend more than £32.3bn on the Winter Olympics, making it the most expensive in history.

With a year to go, attention has begun to focus on the Black Sea resort. Putin said on Monday that he would use Russia's G8 presidency next year to host the organisation's annual summit in the city.

Russians have been flocking to Sochi's beaches since the days of Stalin, who favoured the city's atypically Russian subtropical climate and peppered it with neoclassical mansions and palm-tree-lined boulevards.

They now stand overshadowed by towering construction sites after developers poured in on the news of the Olympics win. Some 400 highrises – hotels and blocks of flats – are currently under construction.

News of the Olympics win also brought a wave of suspected mafia violence. The most high-profile attack came in late 2010 when Eduard Kakosyan, known as Karas, was gunned down by a man on a motorcycle. He was said to be one of Usoyan's top lieutenants in the city.

"[Usoyan] was like a governor here, but from the criminal world," said a source close to the security services in Sochi. "It's like a second government."

Although Usoyan, like all true vory v zakone, or "thieves-in-law" – a once hard-won status bestowed upon the highest ranks of Russia's criminal underworld – owned no property himself, he was believed to maintain ties to many businesses in the city.

The security services source said the city's picturesque boardwalk, as well as many hotels and restaurants, were believed to be under Usoyan's purview.

Viktor Teplyakov, a local MP from the ruling United Russia party, denied that was the case. "Many years ago there was an 'overseer' but after he was killed, no other criminals came to Sochi," Teplyakov said. "The city is very safe."

Teplyakov has fought off rumours in the Russian press that he had ties to Usoyan: "I am far from the criminal world – no meetings, no calls, no contacts."

The source close to Sochi's security services said an eerie quiet had descended on the city. "Everyone is waiting to see what will come next," the source said. "It's sure that something will happen. The money is too big for everything to just sit still."

Usoyan, an ethnic Kurdish Yezidi from neighbouring Georgia, was 75 when he was killed by a sniper after leaving his favourite Moscow restaurant, and makeshift office, on 16 January. He was buried with little fanfare four days later in a cemetery on the capital's outskirts.

Usoyan was one of Russia's most high-profile thieves-in-law. He was tasked with overseeing his mafia clan's obshchak – a term applied to the clan's common fund – and doling out its cash.

His death removed one of the most powerful players in the Russian mafia, reviving fears of a 1990s-style gang war.

Since Usoyan's murder in mid-January, Russia's underworld has been hit by further assassinations and arrests. Most have centred around Rovshan Dzhaniyev, an ethnic Azeri who is among those rumoured to be suspected of ordering the hit on Usoyan.

On 20 January, a lieutenant of his in Abkhazia, the breakaway Georgian region that borders Sochi, died after being targeted in a drive-by shooting in the republic's capital, Sukhumi.

Just over a week later, another thief-in-law, Rufat Nasibov, better known by his mob name Rufo Gyandzhansky, was shot dead in Moscow. A Russian security services source told the Rosbalt news agency that Nasibov was responsible for the clan's "security operations, including the removal of enemies". Dzhaniyev himself was unexpectedly detained in Azerbaijan's capital Baku on the same day.

Dzhaniyev's arrest could be a sign that the security services, which maintain close ties to security agencies in many post-Soviet states, were seeking to stave off all-out conflict in Russia's powerful underworld.

"Most people don't want a war," said Mark Galeotti, a professor at New York University who specialises in the Russian mafia. "It's a bit like the runup to world war one – no one wants a war, no one expects a war, but tensions have built up to such a pitch that there is a risk that what might seem to be one shooting can start the whole process rolling."

He said open war would be an embarrassment to Moscow, illustrating its "failure to deal with the problem properly in the last 15 years".

Russia has worked hard to present its powerful mafia as something that died with the 1990s – coinciding with Putin's rise to power. In 2008, Putin's protege Dmitry Medvedev, then president, shut down the chief interior ministry department devoted to fighting organised crime.

"We thought it was a joke," said an official who served in the department until its closure, on condition of anonymity. "There isn't a business in Russia that isn't under somebody [in the mafia]."

Mobsters of all levels now enjoy high protection from members of the Federal Security Service, the source alleged.

"We would arrest this guy or that guy and he would make a call and I was told to let him go," the source said, adding that agents were often bought off for a one-time fee of $300,000 and monthly payments of $10,000-$30,000.

A US diplomatic cable released by WikiLeaks in December 2010 cited a Spanish prosecutor devoted to dismantling Russian mob activities abroad as saying the country functioned as a "virtual mafia state", referring to the co-dependence of the mob and the state.