A total of 40,000 illegally-burned DVDs, worth more than £120,000, have been seized in what is believed to be the biggest haul of its kind in the city.

Three homes used as factories to produce counterfeit films and three shops selling the illegal Hollywood and Bollywood blockbusters have been raided after a two-month investigation.

Police, trading standards officers and representatives of the Federation Against Copyright Theft (Fact) and the British Music Industry (BPI) acted to break up what was believed to be city's largest fake DVD manufacturer. Investigations began after complaints from shoppers about poor quality DVDs on sale – and some films being in shops before they had been released for the cinema.

The DVDs are now being stored by Leicester City Council, which wants to take legal action against three shops selling them. Two men, aged 18 and 53, were arrested under the Trade Marks Act 1994 and bailed pending further inquiries.

Senior city trading standards officer Ivan Thompson said: "We believe it is the biggest operation we have ever seen in this city and Fact also says it is among the biggest they have seen nationally.

"This illegal operation was brought to our attention after complaints from the public because of the sometimes very poor quality of the DVDs. As with all complaints, we will carry out test purchasing and then we did surveillance."

The seizure, codenamed Operation Rockingham, saw homes in Hamilton, St Matthew's and Belgrave and three shops selling the DVDs in Highfields and Belgrave, raided on Wednesday.

If the prosecutions are successful, the culprits could face up to 10 years in prison and an unlimited fine.

City councillor Robert Wann said: "Counterfeiting is a crime which has a knock-on effect on the rest of society, particularly on the economy as it threatens jobs provided by legitimate businesses in Leicester."

He praised trading standards and police for their work.

According to The National Federation Against Copyright Theft, counterfeiting deprives the film industry of about £400 million in the UK each year.

Kieron Sharp, Fact director general, said: "This operation has been successful in removing more than £120,000 worth of counterfeit DVDs.

"Fact is pleased to be able to assist Leicester Trading Standards and Leicestershire Police on an ongoing basis to tackle those who are making and selling illicit products."