MADRID (AFP) - Spanish police said on Wednesday they had arrested 740 people in a massive probe into fake businesses created to obtain social security benefits as well as residence or work permits for foreigners.

It was the biggest police operation yet against such scams, police said in a statement, estimating the overall cost to the state of the frauds under investigation at 20.5 million euros (S$35 million).

Officers targeted a total of 135 companies, supposedly working in hotels, construction, courrier services, gardening and cleaning, they said.

"Among those arrests are 30 managers of the fake businesses, which, without undertaking any real activity, registered employees with Social Security so as to illicitly obtain benefits or to obtain residence or work permits for foreign citizens," the statement said.

Police said the companies registered more than 8,400 new hires with Social Security, obtaining 2,100 benefit payments or unemployment subsidies. A total 362 foreign citizens sought to obtain work or residence permits through the scam, they said.