Telecommunications group Ericsson was caught up in an international espionage scandal yesterday after Swedish security police arrested three people for allegedly handing over its secrets to a foreign power.

All three are either past or present employees of the company, which works on defence electronics as well as telecommunications.

The ringleader of the alleged plot was arrested at a meeting with the agent of a foreign power, according to the police.

"When the man was arrested the police seized some material which was supposed to be handed over to the agent [of the foreign power]," the police said in a statement.

The two other people arrested are suspected of supplying the information.

The Swedish authorities have refused to name either the foreign power it believes was involved or any of the three Swedes arrested - although it said the trio face serious charges of either espionage or industrial espionage. They said the investigation was at a sensitive stage and they could not release more information.

Ericsson said it could not say what information had been supplied to the foreign power but sources indicated it had come from the company's development operations.

They declined to say where or in what circumstances the arrests had been made.

The security police said it was "impossible to tell as yet what the consequences of the handing over of this secret material may be for Sweden's security".

However Ericsson was at pains to play down the likely damage. None of the three arrested Swedes had held high-ranking positions within the company and spokesman Henry Stenson said in a statement: "Our opinion today is that the damages are limited. Thanks to timely handling, the deliveries [of information] were stopped."

Mr Stenson said later: "We have all seen James Bond and other spy pictures. They start rather slowly and then speed up. We think we have been able to break the chain early."

Ericsson is one of the world's leading suppliers of telecommunications equipment but its microwave unit, which employs about 2,000 people out of a total workforce of 72,000, is also involved in developing missile and radar systems for fighter aircraft such as the Gripen fighter.

The company declined to comment on whether any of the three suspects had been among those made redundant in Ericsson's recent cost-cutting programmes. The company is attempting to rebuild profitability in the face of the sharp downturn in the telecoms market as operators slash orders.