The employee was reported to be a 38-year-old man who was a secretary to Qiu Jin, the deputy minister of state security in China's Ministry of State Security, the Los Angeles Times said.
The employee, who was not identified, was alleged to have been recruited and trained by the CIA this year.
"He helped to successfully penetrate the state security department and became aide to the vice minister … and was able to get his hands on core secrets of senior state officials," a report in the Hong Kong-based Oriental Daily said.
The newspaper reported the employee had been photographed in a compromising position in a Hong Kong apartment by a woman who later got him to spy.
Another account says the employee was recruited while a student in the United States, the Times reported.
Qiu, the deputy minister of state security, is believed to be a close ally of Chinese President Hu Jintao and Premier Wen Jiabao.
In February, the Times said, Qiu personally handled the case of Wang Lijun, a police official from Chongqing who had been given protection at the U.S. Consulate in Chengdu in western China. Wang alleged Bo Xilai, the party secretary from Chongqing, was covering up a killing committed by Bo's wife.
U.S.-China relations have been strained over Wang's failed bid to receive asylum and the case of Chen Guangcheng, a blind activist who escaped house arrest, went to the U.S. Embassy in Beijing and left China for the United States last month.