Federal police late on Tuesday raided the offices of the mayor, a government auditing agency, the district attorney and the legislature of Mato Grosso state, of which Cuiaba is the capital, in search of documents and other evidence.
The state's former finance minister and an ex-head of the state legislature were arrested and taken to jail in Brasilia. Federal police also raided the home of Mato Grosso Governor Silval Barbosa in search of documents and arrested him after they found a handgun with an expired licence. Barbosa paid bail and was released.
A senior official at the state prosecutors' office told Reuters that the probe involves hundreds of millions of dollars in missing government funds.