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BEIJING (Reuters) - China's once-in-a-decade leadership transition has been hit by reports of fresh scandal, with a senior ally of President Hu Jintao being demoted after sources said the ally's son was involved in a deadly crash involving a luxury sports car.

The car - a Ferrari according to some of the sources - crashed in Beijing on March 18 in an embarrassment for the ruling Communist Party, sensitive to perceptions that children of top party officials live rich, privileged lifestyles completely out of touch with the masses, the sources said.

The country has already been rocked by the biggest political scandal in two decades - the sacking of Bo Xilai, an ambitious senior politician whose wife recently received a suspended death sentence for the murder of a British businessman in a case that also involved a mix of money and power.

The car crash, the details of which are still shrouded in mystery, reportedly involved the son of Ling Jihua, 55, who state media said was dropped at the weekend as head of the party's General Office of the Central Committee.

It is a powerful post, similar to cabinet secretary in Westminster-style governments. Ling is very close to Hu.

Ling could not be reached for comment on the matter. He had been eyeing a promotion to the Politburo - the party's policy-making council - and to become head of the party's Organisation Department, which oversees the appointment and dismissal of senior officials, sources said.

"The central leadership decided that the scandal over the incident was too serious to allow Ling Jihua to be promoted, and Hu Jintao really couldn't resist," a retired party official said.

Sources close to the leadership, speaking on condition of anonymity, said three young people were in the car at the time of the crash, including the ally's son, aged in his 20s. At least one of the trio died in the crash, they added, but the victims' identities were unclear. They did not know the son's full name.

One source and a journalist who once worked for a party publication - both speaking on condition of anonymity - said the son had died in the crash, and the source added that the son's death certificate had been changed to disguise his identity.

The South China Morning Post first reported this alleged cover-up on Monday, saying the son's surname had been changed to Jia", which has the same pronunciation as the word "fake" in Chinese. The newspaper gave the son's real name as Ling Gu.

A second source with ties to China's leadership said the son had not died in the crash.

The South China Morning Post said two women, one aged in her 20s and the other in her 30s, were seriously injured.

The Beijing city government and police have declined to comment on the accident.

ANGER AT THE TOP

A businesswoman with family ties to a senior leader said Ling had been criticized by other leaders, including former president Jiang Zemin, for attempting to hush up the accident.

"Jiang has been adamantly opposed to Ling Jihua receiving a powerful position," she said, requesting anonymity due to the sensitivity of discussing elite politics.

Over the weekend, Ling Jihua was appointed head of the Communist Party's United Front Work Department, a less influential position than his current post, in a move that was viewed as a setback for President Hu's efforts to retain major influence in the next administration. He will retire as president at the next annual national parliament session, which usually takes place in March.

Calls to the United Front Department and Organisation Department went unanswered on Monday.

Ling has been among the officials who are nearly always at Hu's side during visits at home and abroad over the past decade.

Chinese state media announced that he was replaced as head of the General Office by Li Zhanshu, 61, a close ally of Vice President Xi Jinping, a move that confirmed a July 18 Reuters report. Li cut his teeth in the Communist Youth League, Hu's power base, but is not seen as being as close to the current president as Ling.

The General Office is the organizational cockpit of the party's top leaders. It is responsible for shaping the policy agenda, deciding who those leaders meet, as well as their travel arrangements at home and abroad, and security details. Its head is roughly equivalent to the White House chief of staff.

The car crash first drew public interest in March when the Global Times, published by the official People's Daily, reported that online information about the accident had been deleted.

That triggered suspicions about the identity of the deceased and a storm online, but China's government censors have deleted all microblog posts mentioning the car crash and blocked searches of the words "Ferrari", "Little Ling" and "Prince Ling".

(Editing by Mark Bendeich and Raju Gopalakrishnan)