Police conducted a search and seizure operation at the premises of a construction company following allegations of fraud.
The operation at The Construction Company, led by the Commercial Crimes Unit, also comes amid allegations of a lack of co-operation from the City's officials regarding the investigation.
Police spokesperson, Colonel Andrè Traut confirmed the search warrant in connection with a fraud case, reported in October.
Traut said the investigation was ongoing and no details could be disclosed at this stage.
Company director Asif Khan said they co-operated with the police and would not comment any further.
Crime activist Hanif Loonat opened a case against the construction company for alleged irregular or fraudulent transactions worth millions of rands involving the City of Cape Town.
He said the alleged fraud robbed poor residents of vital service delivery as the funds were meant for the upgrading of ailing infrastructure on the Cape Flats.
Loonat alleged serious breaches of the term tender contract between The Construction Company and the City, claiming prices of building materials were inflated by up to 10 times and City officials approved and paid for costs outside of what was allowed.
Under a term tender which normally takes about two to three months to award, the successful bidder can be given additional small projects not exceeding R2 million each during the contract period, without the City having to advertise for a tender again,,
However, Loonat claimed the initial project contract was worth R2m but 400 projects ranging from R500 000 to R2m were later issued.
He also claimed inflated payments were made even though there were mechanisms in place to ensure and protect the City from being overcharged.
Loonat further claimed the "irregular" transactions took place under the watch of competent officials who had been doing their work for some time.
Loonat brought the alleged fraud to the attention of mayor Dan Plato who ordered an internal investigation.
He has since voiced concerns over what he regarded as lack of co-operation by City officials regarding the investigation.
"While the Commercial Crimes Unit requested the assistance of the city manager and the internal forensic unit, they have been unwilling to release or discuss the pertinent information related to the case," Loonat claimed.
A report which the forensic unit had promised to provide in October had yet to be made available, he added.
City spokesperson Luthando Tyhalibongo said the "issue had been reported to the City manager for his attention" and the Hawks were also investigating the matter.