Both Serco and G4S are under criminal investigation by the Serious Fraud Office amid allegations of wrongfully charging the government for the electronic tagging of criminals on behalf of the Ministry of Justice.
The SFO had been looking at whether it should open full criminal investigations into both of the security and outsourcing giants after Justice Secretary Chris Grayling raised the alarm over Serco and G4S in June.
Grayling said he had seen evidence that both firms had charged taxpayers for carrying out electronic tagging work that had not in fact occurred. In some cases, it is claimed that the government paid for the tagging of prisoners who were actually dead.
He added there was no evidence that knowledge of any wrongdoing went up to executive level.
"The Director of the Serious Fraud Office has opened a criminal investigation into G4S and Serco electronic monitoring contracts," said the SFO.
An opening of criminal investigations comes days after the resignations of Serco Chief Executive Christopher Hyman and the G4S UK Chief Executive Richard Morris, who had previously been managing director of electronic monitoring at G4S Care & Justice Services.
Both Serco and G4S said in separate statements that they will co-operate fully with the investigations.
A spokesman for the Ministry of Justice said: "This matter is now the subject of a criminal investigation. We are not able to comment further at the current time. We will make a further statement when it is appropriate to do so."