Two UK servicemen were arrested by military police after claims they filmed themselves abusing two Afghan children and then showing it to colleagues on laptop computers.
The pair, a sergeant and a private from the Mercian Battle Group, apparently told a young girl and boy to grope them through their clothes.
The children were thought to be around the age of 10.
A spokesperson from the Ministry of Defence told the International Business Times UK: "We are aware that an allegation has been made concerning alleged inappropriate behaviour by two servicemen in Afghanistan."
"The Royal Military Police (Special Investigations Branch) has launched an investigation into this. We take any such allegation extremely seriously."
The Prime Minister, David Cameron has expressed that he is "deeply shocked" over the claims last night who was informed by defence chiefs.
There were investigations after the pair showed the footage to fellow servicemen, who later complained.
Laptops have been seized to assist the enquiry and the military police are due to thoroughly check their contents.
A source for The Sun said: ""Nothing has been proved. What we have to establish is whether we are looking at sexual predatory behaviour or totally ill-judged larking about.
"Whatever the case, it is utterly inappropriate and terribly damaging to the British Army's reputation in Afghanistan."
A senior defence source added: "We are determined to get to the bottom of this ASAP. Any criminal behaviour will be dealt with robustly and must not be allowed to undermine the excellent work our armed forces are doing in Afghanistan."