A British trader helped spark a crash that wiped billions off the value of Wall Street stocks from a semi-detached house in west London, US prosecutors claim.

Navinder Singh Sara appeared at Westminster Magistrates Court following his arrest by police on behalf of US authorities investigating the so-called Flash Crash five years ago.

The 37-year-old is facing possible extradition over the allegation his company, registered to a modest three-bedroom house in Hounslow, used "dynamic layering" computer software to make £134m of fake trades - netting him a total of £27m.

He told the court he would contest the extradition request.

An affidavit issued by US authorities says he made £587,879 on the day of the Flash Crash alone, when the Dow Jones Industrial Average fell more than 700 points in minutes before recovering many of the losses.

FBI agent Gregory LaBerta claims in the affidavit: "On May 6, 2010, Sarao used the dynamic layering technique extensively and with particular intensity. In total, Sarao obtained approximately $879,018 in net profits from trading e-minis that day."

The process allegedly involved placing multiple, simultaneous large volume sell orders at different price points to create the appearance of substantial supply.

Sarao is then accused of continually amending the orders to track the market price, before cancelling them before they were executed.

As the prices fell, he would allegedly sell futures contracts and buy them back at the lower price.

Neighbours said the Sikh family had lived in the quiet suburban street for many years.

They said they saw around 20 people streaming in and out of the house on Tuesday and an unmarked police car parked outside.

A neighbour, who asked not to be named, said: "I was taking my son to school this morning at around 8.15am and then I saw around ten people in their front garden.

"I saw the mother who lives there walk over from her other son's house, who lives across the road. She didn't look very happy.

"And I saw an unmarked police car with plain clothed officers inside. The family keep themselves to themselves."

The Flash Crash rocked stock markets and was initially blamed on jitters surrounding the European debt crisis.

Tuesday was the first time that US regulators have linked market manipulation to the incident. Sarao faces counts of wire fraud, commodities fraud and manipulation.

The Commodity Futures Trading Commission also filed parallel civil charges against Sarao on Tuesday, calling him a "very significant player in the market".