Kenya could descend into violence worse than the 2008 post-election crisis unless rampant corruption in the ruling elite is tackled, the US ambassador to Kenya has warned in a report to Washington.

Michael Ranneberger's cable, written in January, is scathing about efforts to reform the political system in the country. "While some positive reform steps have been taken, the old guard associated with the culture of impunity continues to resist fundamental change," he wrote.

That culture has existed since independence, he said, adding that President Mwai Kibaki, prime minister Raila Odinga and "most members of the cabinet and leaders of the political parties" are part of it.

He cited, but did not name, "a person at the Kenya Anti Corruption Commission ... [who] blocks progress on high-level investigations and has ties directly to State House. He also described a senior policeman as having close links with the president but "allegedly closely associated with the 'kwe kwe' death squad responsible for extrajudicial killings."

"Failure to implement significant reforms will greatly enhance prospects for a violent crisis in 2012 or before – which might well prove much worse than the last post-election crisis," he wrote.

In 2008, chaos followed the release of election results which many claimed were rigged by the government. About 1,500 people died in the ensuing violence and more than 300,000 were forced to flee their homes. After weeks of talks between Kibaki's ruling party and Odinga, the opposition leader, a deal was struck which left Kibaki as president and made Odinga prime minister. However, most of Kenya has remained a divided society, with thousands of people still unable to return to their homes and very little justice for the perpetrators.

Describing Kenya as an important strategic partner of the US, Ranneberger described the battle against the ruling elite as a game of chess. "While we are no mean chess players ourselves, it is very difficult to anticipate their next move or the motives behind 'reform' steps."

He said that although "the grip of the old guard political elite on the levers of state power and resources remains largely intact, hairline fractures are developing in their edifice which – if we continue to work them intensively – will develop into broader fractures and open up the potential for a peaceful process of implementation of fundamental reforms."

Meanwhile, other documents, which indicate how closely the US is watching China's rise in Africa, claimed Beijing was providing military and intelligence support to Kenya with the help of a corrupt official. A 17 February memo from the US embassy in Nairobi said China was providing weapons to Kenya "in support of its Somalia policies", and computers and telecommunications equipment to the Kenyan National Security and Intelligence Service (NSIS).

The memo said that, in January, China provided "weapons, ammunition, supplies, and textiles for making uniforms" via the Chinese military import-export corporation Catic. The goods were to in support of the GOK's Kenya's "Jubaland initiative", Jubaland is being the southern-most Somali province on the borderng with Kenya.

In August last year, a telephone monitoring equipment contract was awarded to a Chinese company, the cable claims. It alleged the deal was done after the Kenyan telecoms company was pressured to do so by the intelligence services.

The cable goes on to allege that one senior intelligence service officer received kickbacks from the Chinese company while on a visit to China. Another "received monthly payments of over $5,000 [£3,000] from [the Chinese company] which were used to pay medical bills."

The memo's conclusion made clear the potential for antagonism between America and China, which has been multiplying its investment in Africa in return for mineral resources. "Collaboration between the USG [US government] and China in Kenya should be approached cautiously as there appears to be little dovetailing of our interests to date," it said.

The Chinese government was criticised for not addressing the "reform agenda", which was essential to Kenya's future stability and prosperity. "The GOC [government of China] turns a blind eye to the flooding of the Kenyan market with Chinese counterfeit goods, such as batteries, which directly damage US market share here; and the GOC has not demonstrated any commitment to curb ivory poaching."

The cable said China's involvement in Kenya was expected to grow given its strategic location. "If oil or gas is found in Kenya, this engagement will likely grow even faster. Kenya's leadership may be tempted to move ever closer to China in an effort to shield itself from western, and principally US, pressure to reform.

"Given the possibility of a backlash by the Kenyan people against China, perhaps over the issue of imported Chinese labour or mishandling of natural resources, there may be benefits to keeping our distance, at least publicly, from China."

Another memo, from the US consulate in Lagos, Nigeria, on 23 February this year , was even more blunt in its assessment of the potential rival superpower.

Apparently based on a conversation with Johnnie Carson, the US assistant secretary of state for African affairs, it said: "China is a very aggressive and pernicious economic competitor with no morals. China is not in Africa for altruistic reasons. China is in Africa for China primarily."

It warned of "trip wires". "Is China developing a blue water navy? Have they signed military base agreements? Are they training armies? Have they developed intelligence operations?

"Once these areas start developing then the United States will start worrying."

In the meantime the US will would continue to push democracy and capitalism, in contrast to "Chinese authoritarian capitalism".

Referring to the Zimbabwean and Sudanese leaders respectively, the cable said: "The Chinese are dealing with the [Robert] Mugabes and [Omar al-]Bashirs of the world, which is a contrarian political model."

Kenya government spokesman Alfred Mutua described the bribery allegations as "preposterous and out of sync with reality". "Allegations of money being given for medical purposes are baseless," he said. "We can only conclude that the cable was based on assumptions or manufactured analysis and have no bearing as far as we can ascertain."