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EU funding for a scheme to refurbish shops and business premises in two Pembrokeshire towns has been suspended.

The grant scheme is linked to a police investigation into allegations of fraud.

The Welsh government said funding for Pembrokeshire council's Commercial Property Grant Scheme has been put on hold temporarily during a review by the council.

The council declined to comment before the matter is discussed by its cabinet.

According to the council's website, the funding is part of an EU-backed project to "revitalise and restore the rich heritage" of Pembroke and Pembroke Dock.

A Welsh government spokesperson said: "As a precautionary measure, WEFO (the Wales European Funding Office) has temporarily suspended EU funds payments to Pembrokeshire council in respect of its Commercial Property Grant Scheme while the council's review of eligibility of expenditure is under way."

The scheme paid for work on a three-storey former bank in Pembroke Dock, which is the subject of a Dyfed-Powys Police investigation.

A grant of £71,333.50 was paid for work on ground floor of the building at 10 Meyrick Street.

The council says that "irregularities relating to the tender" have been formally referred to the police.

Responding to the decision on funding on Friday, the council said: "This matter is due to be discussed by cabinet on Monday. There is no further comment."

Labour councillor Paul Miller said: "Pembrokeshire council has failed spectacularly to manage the Commercial Property Grant Scheme in Pembroke Dock.

"When concerns were raised they steadfastly refused to accept even the possibility there could be a problem and attacked those councillors demanding answers."

Dyfed-Powys Police has confirmed it is investigating an allegation of fraud made by the council.

The owner of 10 Meyrick Street, a Dorset-based property developer called Cathal McCosker, said it would be inappropriate for him to comment.