An ex-serviceman arrested over the disappearance of Katrice Lee 38 years ago has been released without charge.

Katrice disappeared from a supermarket near a British military base in Paderborn, Germany, on November 28 in 1981, her second birthday.

She was out shopping with her mother Sharon and aunt Wendy at the Naafi store close to where her soldier father Richard was stationed.

Katrice Lee went missing on her second birthday. Credit: Family handout/PA

Military police reportedly began searching a terraced house in the Moredon area of Swindon on Monday.

However an ex-serviceman arrested on Monday has been released without charge, the Army said.

In a statement on Wednesday, it said: "A former serviceman was arrested by the Royal Military Police on Monday September 23 in connection with the disappearance of Katrice Lee.

"He has now been released without charge. The search of an address in Swindon continues and the Royal Military Police are keeping the Lee family informed of developments."

Katrice’s father, a retired sergeant major, told the Mirror that he had been made aware that an arrest would be made.

“This arrest brings it all back and makes it feel raw,” he said.

“As with parents in all cases of missing children, we want a happy ending but that might not be the case and we just hope we will get answers.”

In a post on Twitter, the Help Find Katrice account said: “Following recent events in Swindon we will be making no comments until we know for sure what is happening.

“The family ask that people refrain from speculation at this time so as not to jeopardise any future proceedings. #WeLiveInHope #KatriceLee”.

Royal Military Police launched a re-investigation, named Operation Bute, into Katrice’s disappearance in 2012.

Last year, a forensic search took place on the bank of the River Alma, near where Katrice was last seen, but nothing was found.

Katrice went missing while shopping for treats for a birthday party with her mother Sharon, from Gosport, and aunt Wendy.

Her mother realised in the checkout queue that she had forgotten crisps and asked her sister to watch Katrice.

When she returned in what she has estimated was less than a minute, Katrice was gone.

Her sister said Katrice had run after her and she believed they were together.