Released in 1990, the background of this movie is set in the emperor Wanli's reign in the Ming Dynasty, when the two corrupt secret police bureaus, Dongchang and Sichang, fought each other for gaining more power. A secret wugong book, Kuihua Baodian, was stolen from the Forbidden City. The head of the Dongchang police bureau believed that Lin Jhennan committed this crime, so he sent his subordinates, Jinyiwei, to regain the book by force.

      Lin Jhennan turned to the head of the Huashan School, Yue Buchun for help. Yue commanded his first disciple Linghu Chong (played by Sam Hui, Syu Guanjie) and his daughter Yue Lingshan (played by Cecilia Yep, Ye Tong) to help Lin. They met Lin in a dye mill, but the assassins from Dongchang led by the head of the Five Mountain Alliance, Zuo Lengchan (played by Lau Siu Ming, Liu Jhaoming), also came. Lin asked Linghu to carry a message about the location of the book, Kuihua Baodian, to his son, Lin Pingjhih. Before long Lin was killed by Zuo Lengchan, but they imputed this murder to the gang, Riyue Shenjiao, which was a powerful rival of them.

      Two good friends, Elder Cyu of Riyue Shenjiao and Liu Tangjhu, were sworn to retire from martial arts circle, but they were chased by Zuo Lengchan. When they met Linghu and Yue Lingshan on a boat, they gave Linghu the music score of Siaoao Jianghu, then they committed suicide.

      Linghu and Yue entered a mountainous area when they were followed by Zuo and Dongchang members. Coincidentally they came across an old wugong master Fong Cingyang. Fong taught Linghu the powerful fencing forms called Dugu Jiujian; he also warned Linghu that his master Yue Bucyun was a hypocrite, after he explained to Linghu what Yue had done when an argument occurred between Yue and his fellow disciples of the Huashan School.

      A young man from Dongchang, who pretended to be Lin Jhennan's son Lin Pinjhih, visited Yue Bucyun. Yue and Linghu both trusted him; when Linghu came back. Yue gave Linghu some poisoned wine and wanted to know the location of Kuihua Baodian. Linghu passed this information on to the imposter and almost died but was rescued by Ren Yingying (played by Sharla Cheung, Jhang Min) from Riyue Shenjiao.

      When Linghu recovered, he and the members of the Riyue Shenjiao rushed to the dye mill, where a violent battle for the book Kuihua Baodian had started already. The evil were all killed and Linghu Chong using the fencing form, Dugu Jiujian, killed his master Yue Bucyun, because Yue threatened to kill all members of Huashan in order to gain Kuihua Baodian, when Linghu told him that the material in his hand was actually the music score of Siaoao Jianghu. Linghu and Yue Lingshan got together when the movie ended.