A police inquiry was set up last month after the fire service received a tip-off that retained officers, who provide weekend and night cover, were creating work so they could claim a pounds 10 call-out fee.
Retained firefighters receive a payment each time they are called out as well as a basic fee, while full-time staff are paid a salary no matter how many calls they answer.
Detectives yesterday questioned five part-time firefighters - all men - from Horwich Fire Station in Greater Manchester following allegations of fraud. An alleged hoax fire on moorland is reported to be a key part of the inquiry. Police examined records of fire calls as part of their investigations. The fraud allegations span several years.
Horwich station, which deals with just under 900 calls a year, has seven full-time and 12 part-time firefighters.
Fred Walker, chairman of the fire authority, said: "The brigade has done everything in its power to uncover the truth behind these allegations. The result of our own internal investigation were handed over to the police who were also carrying out their own investigations.
"These arrests will come as a shock to the people of Horwich who have always had the greatest admiration for their firefighters. We currently have a recruitment drive in the area and hope that this will not deter applicants."
Confirming the arrests, Greater Manchester Fire Officer George Almond said: "This is a very serious matter and if found guilty of any criminal activity, they will be summarily dismissed.
"Meanwhile I would like to assure the people of Horwich that contingency plans have been put in place to ensure that they have adequate fire cover overnight and at the weekend."