Police have foiled an audacious attempt by criminal hackers to steal £220 million from a Japanese banking group in the City, it emerged today.

A high-tech crime ring planned to use "keylogging" technology - which records every keystroke typed into computers - to gain access to Sumitomo's systems in London and transfer money electronically to ten bank accounts around the world.

If the heist had been successful, it would have been Britain's biggest ever bank theft - easily dwarfing last year's £26 million Northern Bank raid in Belfast. Experts said that it would also have been the world's biggest cybercrime.

According to a report in today's Financial Times, the theft was foiled by the UK's National High-Tech Crime Unit (NHTCU), which has been investigating the case since last October. A man whose business account had been the intended recipient of €20 million (£13.9m) was arrested in Israel yesterday.

The NHTCU declined to comment on the case today, although sources close to the organisation said further arrests were expected in the coming days.

Police in Israel identified the man arrested as 32-year-old Yaron Bolandy. He appeared at a Tel Aviv district court this morning charged with attempted money laundering and deception and was remanded in custody for a week.

Ian MacKinnon, Times correspondent in Jerusalem, said two that officers from the NHTCU were in Israel to help the Israeli police conduct their investigation.

It is not clear whether the group hacked into the Japanese bank's system or installed the software on-site, but police and internet security experts have been warning City institutions to be on the look-out for criminals using this technology.

Keylogging uses relatively simple spyware to monitor all the keystrokes made on a computer terminal and then transmits that information to the hacker by e-mail. The software can be bought commercially for under $20 and is used by employers to track employees or individuals to track the computer usage of spouses or children.

More sophisticated versions of the software are used by security services as they try to monitor organised crime or terrorist groups.

In the wrong hands, however, keylogging is an increasingly dangerous tool. It does not rely, like phishing, on enticing a user to enter valuable information in a rogue website. Instead it effectively looks over a user's shoulder as he or she enters legitimate details into a legitimate website.

Takashi Morita, head of communications at Sumitomo in Tokyo, said that the company had not suffered any financial loss as a consequence of the robbery attempt.

He said: "The case is still in the middle of investigation so we cannot comment further. We have undertaken various measures in terms of security and we have not suffered any financial damage."

Yurong Lin, CEO of Deepnet Technologies, a British firm that is developing an internet browser that will warn users of any attempt to log their keystrokes, said the attempted theft from Sumitomo was "huge".

Mr Lin said that home PC users were also at risk from the technology, even if they had common anti-virus protection.

"Protecting yourself against keylogging is very difficult because it works in the background.

"The main thing is that you never download anything from a website unless it's a site that you really trust. After that, we advise that you go and install some anti-keylogging software. That won't give you 100 per cent protection, but it will help a lot."

Gary Clark, head of European operations the for US internet security firm SafeNet, said a major problem was that many companies were still relying on password protection instead of "two-factor authentication" using something physical like a smart card or USB token that can help generate a unique access code.

"From our point of view, we would be asking serious questions about what kind of authentication the bank had in place," he added.

One of the best known cases of "keylogging" theft was by a New York man who stole personal information from 450 people in 2003 after installing software in Kinko's copier shops.

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