By Ben Farmer in Kabul
Sediq Chakari, former minister of Hajj, and who is thought to be in Britain has been under investigation into his alleged involvement in a kickback racket which made hundreds of thousands of pounds from poor pilgrims.
Mr Karzai's palace allegedly vetoed his arrest because of his close links to former warlords within the government an international official in Kabul told The Daily Telegraph.
The official said: "There was a plan to arrest Sediq Chakari, but a high-ranking official at the palace blocked it because of Chakari's links to warlords in the government.
The case adds to continuing international frustration that Mr Karzai is allegedly failing to honour promises to rein in rapacious corruption among his administration and allies.
Two of Mr Chakari's staff were arrested last year allegedly carrying about £260,000 en route from Saudi Arabia where they were dispatched to lease accommodation for Afghan pilgrims.
Prosecutors believe officials were demanding up to £100 per pilgrim from hoteliers and transport firms with contracts to take pilgrims to Mecca.
Mr Chakari, a British passport holder, strongly denied involvement when allegations first arose.
The official said: "There was a plan to arrest him, but a high-ranking official at the palace blocked it because of Chakari's links to warlords in the government.
"A few weeks later he was allowed to depart the country and may now be residing in the United Kingdom because he is a British passport holder."
Another official confirmed: "He's left the country and we don't know where he is. We are not sure what the triggers were for him leaving."
A workman decorating Mr Chakari's opulent, empty mansion in Kabul's embassy quarter said his employer was believed to be in London.
His disappearance is a blow to international efforts to curb corruption blamed for undermining development in Afghanistan and driving resentful Afghans into the Taliban insurgency.
A recent United Nations study estimated Afghans pay £1.6bn in bribes each year and the finance minister has said £6m of cash is smuggled daily out of Kabul airport to Dubai.
Hamid Karzai used his inauguration speech to promise to eradicate the "stain of corruption" after lobbying from London and Washington to clean up his regime.
However an FBI-style task force created to prosecute major crimes including corruption has struggled against government interference and bribery.
Mr Karzai has subsequently accused the international community of exaggerating graft for political leverage and said most was committed by foreigners.
Each year Saudi Arabia offers 30,000 Afghans places on the Hajj pilgrimage and they pay the Kabul government £2,300 for transport, food and lodging.
The Ministry of Hajj and Islamic Affairs is annually hit by allegations of incompetence and fraud after pilgrims have been left stranded or failed to get what they paid for.
The international official said: "Here is a case involving theft of money from poor Hajj pilgrims, some people who have waited their entire lives for the opportunity to travel to Mecca, and there is no real interest in the leadership of this Islamic state in defending the rights of these citizens.
"If the government won't take action in this case, why should the international community be convinced of its sincerity in other high level cases?"
Mr Chakari was replaced in a December cabinet reshuffle.
He remains a long term ally of Mohammad Qasim Fahim, vice president, and Burhanuddin Rabbani, a former president and influential northern power broker.
Fazel Ahmad Faqiyar, deputy attorney general, first refused to discuss the case and later denied his office had faced pressure from the palace or security services.
He said: "There was not enough evidence to arrest him, if there had been we would have done it."
Hamid Elmi, a spokesman for Mr Karzai's palace, denied interference. He said: "This is not true."