DSG said the fraud was an isolated incident

DSG International said police were investigating the malpractice at a Paris warehouse owned by internet firm Fotovista and arrests had been made.

DSG gave no details of the financial cost of the incident but analysts said the impact could be in the region of �8m to �10m (14.7m euros; $19.6m).

Fotovista, bought by DSG last year, is a small part of its overall business.

DSG, formerly known as Dixons, made a �303m profit last year.

'Isolated incident'

DSG said it had discovered the fraud through its internal security and financial control procedures.

It said losses from the incident could wipe out profits from its new business division this year, which analysts are forecasting could be up to �10m.

"Management has reacted promptly to this isolated incident and is confident that the immediate issues have been resolved," the firm said.

Fotovista was established in the 1950s as a photo processing business but has recently diversified into selling a range of consumer electronics and entertainment products, mainly over the internet.

Separately, DSG has agreed to sell two businesses owned by Fotovista to a private equity firm for �15.2m.