Alesha Ahmed told a family friend her sister Shafilea was "stabbed" by their father and the body was "in pieces", a jury heard on Friday.
Shafilea's parents Iftikhar, 52, and Farzana, 49, deny murdering the 17-year-old by suffocating her at the family home in Warrington, Cheshire, in September 2003.
The teenager's decomposed remains were discovered in Cumbria in February 2004 but it was not until 2010 that Alesha provided police with the "final piece of the puzzle" about her death, the prosecution said.
Giving evidence today, Sehreen Shafaat, 22, a close friend of the Ahmed children, said Alesha told her that Mr Ahmed stabbed Shafilea.
Law graduate Miss Shafaat, a trainee barrister, told the jury she had know the family as a small child and after Shafilea's death became close to the Ahmeds' other daughters Alesha and Mevish.
Following a study session, Miss Shafaat said she and Alesha were in her car when Miss Ahmed turned to her and said the family "were not getting on".
She described Alesha as "upset" and "crying" and said: "And then she just came out with 'My dad did it'."
Miss Shafaat said she knew what Alesha was talking about and was shocked, replying: "What?"
"And she said, 'Yeah, my dad killed her'," the witness went on.
Shafilea's parents, Iftikhar and Farzana stand accused of murdering their teenage daughter
"I asked if she was serious and how (it happened).
"I didn't mean to ask how but it just came out, I didn't know what to say."
She said she couldn't remember the order in which things were said but told the jury Alesha said "something like", "My dad stabbed her and the body was all in pieces".
"I can't remember if she said she had actually seen her dad stab Shafilea," Miss Shafaat went on.
Earlier in the trial, Alesha Ahmed described how her parents pushed Shafilea on to the settee in their house and she heard her mother say "Just finish it here" in Urdu as they forced a plastic bag into the teenager's mouth and suffocated her in front of their other children.
The couple murdered their "Westernised" daughter because they believed her conduct was bringing shame on the family, the prosecution say.
Asked by Henry Riding, prosecuting, if Miss Ahmed mentioned any discussion with her parents about Shafilea's death, Miss Shafaat said: "She didn't say anything about a conversation at the time Shafilea was killed, but she did say her parents did not have any regrets and they did say to the children they had 'done it before and can do it again'."