Citing "sources with elite political ties", New York Times said the decision to open the inquiry into 70-year-old Zhou was made early this month by the ruling Communist Party, also headed by Xi.
It is the first time since the founding of the People's Republic of China in 1949 that an official who has held such high office has been the focus of a formal corruption probe, the report said.
Zhou was once a member of the CPC's most powerful body, the Politburo Standing Committee, and even retired members of that body have always been spared such scrutiny.
The main allegations against Zhou emerged from probes over the past year into accusations of abuse of power and corruption by officials and oil company executives associated with him. Those inquiries have already encircled his son, Zhou Bin, and other family members, Times quoted sources as saying.
Xi, also the general secretary of the CPC and other leaders agreed by early December to put the elder Zhou directly under formal investigation by the party's commission for rooting out corruption and abuses of power, the sources said.
A senior official went to Zhou's home in Beijing to inform him about the inquiry, and Zhou and his wife, Jia Xiaoye, have since been held under constant guard, the paper reported.
Quoting sources, the paper said Zhou was under probe by a special unit of the Central Commission for Discipline Inspection of the CPC. Senior police officers were also helping, they said.
Xi has amassed power since taking leadership of the party in November 2012, and appears to be pressing the case to bolster his leverage over possible challengers.
After Xi took leadership of the Communist Party, he has vowed to take on corruption both low and high in party ranks — both "flies and tigers."
An expert in oil-field exploration, Zhou spent much of his career in the state oil industry and wielded considerable influence over the sector.
Later, while a member of the Politburo Standing Committee, he oversaw the party's sprawling security apparatus, with control over the police, prosecutors, courts and the main intelligence service.
Until now, the highest-ranking politicians subjected to corruption inquiries were serving members of the Politburo, a rung lower than the standing committee in the party hierarchy. They included Bo Xilai, an ally of Zhou's who was sentenced to life in prison in September for taking bribes, embezzlement and abuse of power.
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