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Two senior employees with Caerphilly council have been arrested following a police investigation into pay rises given to executives.

Chief executive Anthony O'Sullivan and another local authority employee are being questioned by police.

Officers said the arrests came amid claims "secret" pay rises were awarded to 21 senior council bosses.

Police were called in after a Wales Audit Office (WAO) report said the council acted unlawfully.

Attention over Mr O'Sullivan's pay grade was initially sparked when his salary increased from £132,000 to £158,000.

This led to protests by staff and trade unions because it was at a time when the bulk of the council's staff were on the third year of a pay freeze.

Following the outcry, the rises were shelved in January and Mr O'Sullivan's increase fell from from £26,000 to £5,000.

Two months later a damning report by the assistant auditor general for Wales culminated with the council boss being suspended on full pay.

Gwent Police were called in after the critical WAO report said the council had acted unlawfully.

The report said: "The decision by the Senior Remuneration Committee on September 5, 2012 to approve the pay structure set out in the report of the chief executive was unlawful on a number of grounds.

"The first is that the meeting of the Senior Remuneration Committee was not properly advertised in accordance with the Local Government Act and neither were agendas for the meeting made available for public inspection as they should have been."

It also said that certain officers - such as the chief executive - should not have been present at a meeting which approved the salary increases.

"No declarations of interest were made and these officers did not leave the room while the decision was made," it added.

"Consequently they participated in the decision-making process when they had a disqualifying financial interest."

Avon and Somerset Police were asked by the Gwent force to look at the WAO findings on the council because of its "working relationship" with the council.

Caerphilly council confirmed it had been told by Avon and Somerset Police that two senior council employees had been arrested and were being interviewed.

"We have been advised by the police it would be inappropriate to comment further at this stage but we will continue to co-operate fully with the ongoing investigation," said a spokesman.