Tokyo prosecutors have arrested Nissan Motor chairman Carlos Ghosn on suspicion of violating a financial law, Japanese media reported on Monday, citing investigative sources.

Nissan said in a statement its internal investigations showed Ghosn had under-reported his income and had committed other misconduct.

Nissan ally and main shareholder Renault, where Ghosn is chairman and chief executive, meanwhile saw its shares tumble on European stock exchange Euronext, down more than 12 per cent just before 11:30 am (1030 GMT).

Japan's second-largest carmaker said Ghosn and representative director Greg Kelly "have been reporting compensation amounts in the Tokyo Stock Exchange securities report that were less than the actual amount, in order to reduce the disclosed amount of Carlos Ghosn's compensation."

Nissan also said Ghosn's "numerous other significant acts of misconduct have been uncovered, such as personal use of company assets, and Kelly's deep involvement has also been confirmed."

Tokyo prosecutors have also arrested Kelly on suspicion of financial misconduct, Kyodo News agency reported, citing investigative sources.

The carmaker had conducted the internal investigation based on a whistle-blower for the past several months, it said.

Tokyo prosecutors had questioned Ghosn and raided Nissan's headquarters in Yokohama, south of the capital, over the matter, Kyodo reported.

Nissan will propose dismissing Ghosn as chairman at its board meeting, the company said.

Nissan offered an apology in a statement before the arrest. 

"Nissan deeply apologizes for causing great concern to our shareholders and stakeholders. We will continue our work to identify our governance and compliance issues, and to take appropriate measures," the carmaker said. 

In 1999, the Brazilian-born Ghosn became Nissan’s chief operating officer to lead the carmaker's turnaround under a capital alliance with Renault. He became Nissan president in 2000