A council has written to all schools in the ward area of one of its councillors warning them he poses a "potential risk".
Cornwall Council chief executive Andrew Kerr said he had asked Alex Folkes to resign from his position as a councillor for Launceston.
In a statement the authority said it had received information "raising serious child protection concerns" relating to Liberal Democrat Mr Folkes.
Mr Folkes said he is "wholly innocent".
Mr Folkes has not returned the calls of the BBC but in a statement to the Cornish Guardian, he said: "An accusation has been made referring to a police investigation which took place more than eight years ago - before I became a councillor.
"No charges were ever brought and I am wholly innocent of any wrongdoing."
Mr Folkes stood down from his cabinet position as head of finance and resources on 4 November, citing "personal issues".
A spokeswoman for the council said a formal investigation had been launched.
"On 16 October, the council received information raising serious child protection concerns relating to Alex Folkes and immediately launched a formal investigation into the circumstances.
"In view of the potential seriousness of the issues raised, Councillor Folkes was asked to stay away from the council whilst the investigation was carried out by senior officers from the authority in consultation with other agencies."
In a statement the council said it was aware of an "adverse entry" on a CRB disclosure form relating to Mr Folkes in 2009.
"Although the concerns arose in relation to specific incidents which occurred in 2003 and, therefore, before Councillor Folkes became a member of Cornwall Council, the authority has an overriding responsibility to safeguard the welfare of children and young people in Cornwall.
"The director of education, health and social care has, therefore, written to schools and children's settings in the Launceston area to alert them to the potential risk posed by Councillor Folkes."
Mr Folkes said in his statement to the Cornish Guardian: "I discussed this matter with the council's chief legal officer when I was first elected.
"Someone is now seeking to raise the issue once again with anonymous letters to the council, local media and others.
"I will be fighting these false claims as I fought the original. The decision by the council to write to sports clubs is totally wrong and unfounded and, I believe, illegal."
The council said it did not have the legal power to remove Mr Folkes from his position as an elected councillor.
The Liberal Democrat group leader, Jeremy Rowe, said: "The party takes the allegations extremely seriously.
"Councillor Folkes has agreed to the suspension of the whip and his party membership while he contests the allegations made against him.
"The party understands the council decision was based on a police investigation that took place 2006. The police made an arrest but took no action against Councillor Folkes. He was never charged, and he denies the allegations.
"We will be taking steps locally to ensure that important issues affecting local people in Launceston are dealt with by an elected representative on their behalf whilst Councillor Folkes has stepped away from his day-to-day duties."
A spokeswoman for Devon and Cornwall Police said: "This matter is subject to an internal investigation by the council, not police."
Mr Folkes was first elected in 2009 and has built a high public profile.
In 2012 he admitted previously facing a court order for not paying his own council tax on time.