Police have arrested 21 employees at China's largest online finance business suspected of fleecing 900,000 investors for $7.6 billion in what could be the biggest financial fraud in the country's history.

State media outlets reported the arrests and broadcaster CCTV showed alleged confessions from two former employees at Ezubao, an Anhui province firm that rose from obscurity to become China's largest online financing platform within about 18 months.

Ezubao was the most spectacular player in a booming online investment industry that Chinese authorities have been struggling to regulate.

Firms ranging from established Internet companies such as Alibaba to virtually unknown upstarts have flooded into the business, promising higher returns than those at state-run banks.

Ezubao promised investors that borrowers on its platform would pay back loans at interest rates of between nine and 14.6%, but 95% of those borrowers were fictional entities created by Ezubao, a former company executive told investigators.

The company advertised heavily online and bought expensive ad spots that were shown just before the widely-viewed nightly news on CCTV, the state broadcaster, former investors said.

Police shut down the operation in December, prompting scores of protesters to gather in Beijing to demand their money back.