The FIR was filed on the basis of a complaint that an executive engineer was asked to pay Rs 1 crore bribe to avoid a raid, Upa Lokayukta Subash Adi told PTI.
Asked if Lokayukta's son would be arrested, he said it was left to the institution's Superintendent of Police Sonia Narang, who blew the lid off the alleged scandal.
The alleged scam came to light after Narang wrote a letter to Lokayukta Registrar about the complaint she received from the Executive Engineer, who alleged that someone from the Lokayukta office demanded Rs 1 crore in bribe to avoid a raid.
"This (Lokayukta) Act was made in 1985;... We cannot give it to CBI under Section 15 sub clause 3 of Lokayukta act...," Chief Minister Siddaramaiah said in the Assembly which is holding its monsoon session in Belgavi.
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He said as per the recommendation made by Lokayukta under the provisions of the Act, a Special Investigation Team headed by ADGP rank officer Kamal Panth who had earlier worked for CBI, had been formed.
BJP staged a walkout as the government did not agree to hand over the case to CBI, a demand echoed by JD(S) also.
Rao, a former High Court Chief Justice, has rejected allegations that his son was involved in the scandal and said he would resign if the charge was proved correct.
Pressure for Rao's resignation mounted as several organisations, including advocates, Kannada outfits and other bodies held protests insisting that his continuance was affecting the credibility of the institution itself.