A Sankeshwar town council member has been arrested on charges of killing Shaila Niranjan Subedar, 56, a pawnbroker.
Police arrested Umesh Kamble, a BJP leader, on January 20.
Ms Subedar was shot at close range near her home in Sankeshwar in Belagavi district on January 16. She was hit by three bullets in the head and stomach and died instantly.
Police Commissioner Lakshman Nimbaragi, who visited the scene, met with local police officers who said they had gotten specific leads and that the investigation was on the right track. He had formed a team of officers to solve the case.
Sankeshwar is close to the border with Maharashtra.
Investigators found the bullets were fired from a domestically-made pistol. They learned that the weapon had been made by blacksmiths in Sangli, Maharashtra, and given to a local chief. The investigation ended at the door of Umesh Kamble, who is involved in various businesses including real estate. Police learned that the BJP leader had taken out a loan of ₹25 lakh from Ms Subedar and was refusing to repay the money.
He obtained the gun through an intermediary and shot and killed Ms Subedar, police said.
The SP commended the team led by Circle Inspector Ramesh Chayagol and comprising Deputy Inspector Ganapati Kogonoli, Constables Bheemappa Naganure, Basavaraj Kaparatti and others.
Police are looking for two other defendants.