The director of the Kenya Pipeline Company and four others have been arrested after millions of litres of petrol went missing in dubious circumstances, police said on Friday.
In October, 10 leading fuel marketers demanded an independent audit of KPC's stock, suspecting up to 20 million litres had gone missing, with much of it falsely declared as "spillage", and believed to have been stolen.
"We have five KPC officers including (managing director Joe) Sang in custody and we are processing them for their appearance in court," said a senior detective involved in the arrest, who asked not to be named.
He said the official charges would be announced later.
The petroleum ministry confirmed the "arrest of the top management" in a statement, naming an interim managing director on Friday.
The government-owned KPC is tasked with overseeing the transport of imported fuel from coastal Mombasa to the rest of the country.
In an audit report before the senate energy committee, company officials said 7.2 million litres of fuel had been lost to spillage, while another 4.4 million litres had been stolen.
However oil marketers believe the true figures could be much higher.
Claims of false spillage reports have dogged KPC, with the latest accusations covering the past two years.
In a statement on Tuesday, the KPC board said oil marketers had been given until December 31 to carry out their own forensic stock audit.
The missing oil scandal is one of several that have erupted recently at KPC. Corruption accusations are also swirling around the construction of a new Mombasa-Nairobi pipeline, which has been hit by delays and allegations of inflated costs.
The arrests are the latest in a rare string of high-profile detentions of officials implicated in corruption in the graft-wracked nation.