Police today arrested the chairman and chief executive of Wessex Water, formerly owned by bankrupt US energy trader Enron, over allegations of corruption.

Colin Skellett is being investigated under the Prevention of Corruption Act 1906 for allegedly receiving a £1m bribe during the company's takeover by a Malaysian energy firm, YTL Power, earlier this year for about $794m (£521m).

"The investigation is focused only on the suspected payment to the official and there is no suspicion of general mismanagement within Wessex Water Ltd," a City of London police spokesman said.

City of London police said they had also arrested another person, not an official of the company, in connection with the case. Mr Skellett is being held at an Avon and Somerset police station. Police have been issued search warrants in the west country area.

Mr Skellett is also the non-executive chairman of Jarvis, whose subsidiary company Jarvis Rail is at the centre of the investigation into May's Potters Bar train crash.

Lord Wakeham, who resigned as chairman of the press complaints commission because he was on the board of Enron, was also on the board of Wessex Water. Andersen in the UK was until recently the auditor for Wessex Water. But investigators said there was no connection between this investigation and Lord Wakeham, Andersen or Enron.

YTL made a winning bid for Wessex after beating a consortium led by the Royal Bank of Scotland, previously named as the preferred bidder. YTL, Malaysia's largest construction group, is 46% owned by the Yeoh family and is run by Francis Yeoh, one of the sons of Tiong Lay Yeoh, the Malaysian billionaire.

Based in Bath, Wessex Water supplies drinking water to about 1.2m people and sewerage services to 2.5m people in the south-west of England. It made a pre-tax profit of £84.3m in the 12 months to 31 March, 6% down on the previous year.

Enron went bankrupt in December after admitting using special partnerships to conceal millions of dollars in debt. Its collapse was the first in a string of scandals, including telecoms giant WorldCom, that has severely undermined investor confidence in the integrity of corporate America and Wall Street.

There were two other bids for Wessex Water, one from Asian billionaire Li Ka-shing, through his Cheung Kong Infrastructure company; itself a part of Hutchison Whampoa, the Hong Kong-based telecoms and ports conglomerate. The Italian utility, Enel, was the fourth bidder.