The assistant director general of WA's Department of Communities has been charged with allegedly stealing more than $2.5 million of public money in what could prove to be one of Australia's most serious cases of public sector corruption.

Key points: Paul Whyte and another man allegedly defrauded the department over two years

Paul Whyte and another man allegedly defrauded the department over two years Police claim they raised false invoices and converted the money for their own use

Police claim they raised false invoices and converted the money for their own use The department has asked for a review from the Public Sector Commissioner

Paul Whyte, 56, and a 43-year-old man who cannot be identified were arrested on Thursday after search warrants were executed in the Perth metropolitan area.

It is alleged the pair manufactured false invoices at the department over a period of two years and had money paid into company bank accounts before withdrawing it for personal use.

Both men remained in police custody after their applications for bail were refused.

Paul Whyte was an assistant director general at the WA Department of Communities. ( LinkedIn: Paul Whyte )

Mr Whyte is a longstanding public sector executive who prior to his current role was the general manager of the Department of Housing for 10 years before it was absorbed into the Department of Communities in 2017, according to his LinkedIn profile.

Before that he was executive director of property registry agency Landgate for three years.

Action taken to 'protect state's finances'

The Corruption and Crime Commission (CCC) initiated the investigation and said the charges followed an intensive joint probe with WA Police.

CCC chief executive Ray Warnes said the investigation was ongoing and the scale of the men's alleged crimes was almost unprecedented.

"The decisive action taken today by police is intended to expose and stop the alleged corruption and to protect the state's finances," he said.

Mr Warnes did not believe corruption was systemic within the WA public sector, despite another high-profile recent corruption case linked to executives within the North Metropolitan Health Service.

"I think you've observed that we've made a number of reports within the government sector over recent years," he said.

"So there are issues with procurement in the public sector. I can't say that it is systemic.

"The public sector organisations have great policies and great procurement practices in terms of procedures.

"But the behaviour of individuals continues to astound us in terms of how people find a way to breach those policies and those procedures."

Paul Whyte during an appearance before WA's Legislative Council. ( ABC News )

WA Premier Mark McGowan ordered an independent review into the Housing Authority in response to the charges.

He said if the allegations proved to be correct, it would be "absolutely appalling" and a "complete betrayal of every West Australian".

Mr McGowan said the investigation was aided by the Government's recent changes to laws that allowed the state to more easily pursue financial crimes.

He also said the changes allowed the properties linked to the defendants to be placed under "freezing orders".

Director general 'shocked' by allegations

The department's director general, Michelle Andrews, said she was shocked and disappointed by the allegations.

Michelle Andrews said she was shocked by the corruption charges. ( ABC News: James Carmody )

Ms Andrews said during her six months in the position she had found the more than 6,000 department employees to be outstanding and committed professionals.

She said she had contacted the Public Service Commissioner to ask for an independent review "looking at matters of integrity" within the department.

She had also taken steps to appoint an interim assistant director general from outside of WA.

Alleged fraud took place over years: police

WA Police Commissioner Chris Dawson said the charges related to conduct over a two-year period.

"It's alleged invoices raised from the Department of Communities' corporate operations account were false, and not for any works, services or products," he said.

WA Police Commissioner Chris Dawson addresses the media. ( ABC News: James Carmody )

"The payment approvals were made, on average, on a monthly basis

"Once the money was deposited into the named company accounts, it's alleged monies were withdrawn and converted to their own personal use."

The men are due to appear in the Perth Magistrates Court on Friday.