The suspect in the Madeleine McCann case is being investigated over a separate child sex allegation a month before she vanished in Portugal.
The German drifter known as Christian B is suspected of exposing himself and performing a sex act in front of a young girl on a beach in 2007.
German prosecutor Hans-Christian Wolters, who is investigating Christian B in the Madeleine case, revealed his new investigation to Sky News.
He said: "In this case of 2007 he is suspected of showing himself in a sexual, offensive way in front of a 10-year-old German child on a beach. I cannot say exactly if he was masturbating in front of the child or if he has just shown himself naked.
"In Germany that is a sexual abuse of a child – and that's why we are investigating. But he is just a suspect, we haven't charged him, so I cannot say anything about how this investigation will end.
"What I can say is that Christian B knows about this second investigation – we sent his lawyer the files of this case."
The victim is thought to have been a 10-year-old girl who was with her family on Salema Beach, about a 15-minute drive from Praia da Luz, where Madeleine disappeared from a holiday apartment in 2007.
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The original investigation was closed without a suspect, but re-opened after the girl's mother went to police when Christian B, 43, was identified as the new suspect in the Madeleine case three months ago.
Mr Wolters said: "Of course we are looking for other crimes related to Christian B. And if we have any findings we will start new investigations.
"You have to look at these things detached. A concrete connection between this crime, even with this new child abuse, and even if it was in the year 2007, but there is no direct connection to the Madeleine case except that the suspect is Christian B."
Christian B, as he is know in the German judicial system, is a drifter who lived on and off in the Algarve between 1995 and 2007.
He is currently in jail in Germany after being convicted of rape and drug trafficking.
His lawyer Friedrich Fulscher has told Sky News he denies any involvement in the disappearance of Madeleine McCann.