BT has issued a profit warning after revising up the impact of an accounting scandal at its Italian business by more than three times to £530m ($661m, €615m).

The telecoms giant first revealed problems at its Italian business in October and at the time said it would cost £145m.

But the group now says "the extent and complexity of inappropriate behaviour in the Italian business were far greater than previously identified".

The business says the scandal will hit its full-year earnings by around £175m.

The news sent shares tumbling by more than 16% in early trading to 319.5p, their lowest level in three years.

The group has bought in accountants KPMG to help it audit the business, which accounts for around 1% of group earnings.

The scandal centres around "improper accounting practices" and questions around how sales, purchases and leasing transactions were handled.

BT said it views the issue as "an extremely serious matter", and has suspended a number of its senior management team who have now left the business.

It has also appointed a new chief executive of BT Italy who will take charge next month, and will conduct a root-and-branch review of the unit.

BT chief executive Gavin Patterson said: "We are deeply disappointed with the improper practices which we have found in our Italian business.

"We have undertaken extensive investigations into that business and are committed to ensuring the highest standards across the whole of BT for the benefit of our customers, shareholders, employees and all other stakeholders."

ETX Capital senior market analyst Neil Wilson added: "A dark day for BT shares, which are on the slide this morning as the company has admitted the cost of dodgy accounting in Italy is far greater than first thought.

"The problem is that investors will fear that this is not the end – what else will be uncovered? The costs could yet rise and that fear is driving the selling this morning."

Other more senior roles at BT's European unit may also be axed as a result of this scandal, according to sources close the group.