Fake escrow sites are increasing in number and sophistication, police and online watchdogs have warned.

Legitimate escrow companies offer online shoppers protection from fraud by acting as a third-party referee for buyer and seller in online transactions.

For a small cost determined by purchase price and method of payment (usually around 2.5 per cent of the selling price), the escrow company takes payment from buyers but will not release it to sellers until the goods are delivered.

But increasingly fraudsters with fake escrow sites are fooling online shoppers into thinking they are dealing with a legitimate organisation. So-called 'phishing' and hacking techniques are used to fool the consumer further.

Online buyers often fall victim to a 'seller' recommending an escrow site that is actually fraudulent. But sellers should also beware of 'buyers' insisting they only feel comfortable completing a transaction through an escrow service they recommend.

In a statement the National Hi-Tech Crime Unit confirmed: "We have seen a gradual increase of fake and fraudulent escrow sites.

"People should not be tempted to go outside the auction house's own escrow service. If they do want to use an escrow service, check very carefully that it is a legitimate website."

Eddie St Clare, founder of legitimate online escrow service AuctionPix, told vnunet.com: "I would say there are 10 times as many fake escrow sites as there are genuine sites.

"There is just no money in setting up a genuine escrow site and companies usually only do this to give customers a valued service.

"Although the fake sites keep getting shut down, because it is so easy and fast to set up new websites they just open up again.

"These people have a lot of skill and many copy information from genuine escrow sites and fake security certificates and padlocks."

The growth in scam sites also reflects the increasing number of people buying online. With consumers growing more confident about purchasing online, they are increasingly interested in auction sites or independent retailers.

But their security fears often push them to escrow as a means of protecting high online purchase payments.

A spokeswoman for the auction watchdog The Auction Guild agreed that scams are getting more sophisticated.

"It is easy to set up these sites but taking basic precautions will help. Try checking Companies House for the company," she said.

"Also, most of the time the English used doesn't scan and it is easy to see these are not native English speakers."