Thousands of children are betting millions of pounds on professional video game players to win tournaments.
The youngsters, many from Britain, are using digital currency to back experts - who can earn thousands of pounds in prize money - during organised competitions.
The currency, called 'skins', can be won or bought while playing chart topping video games and more than £5billion was bet around the world in 2015, reports The Times.
Once purchased, the skins can then enable the player to upgrade their on-screen avatar, including the ones in free-to-play multiplayer online video game Dota 2.
Modifications typically carried out by users include improving their weapons and changing the design of the guns they use.
The games skins can be bought on include the popular multiplayer first-person shooter video game Counter-Strike: Global Offensive.
The youngsters are then able to use the skins as a form of virtual currency to place bets on gamers taking part in organised competitions, known as eSports.
Children are reportedly using unlicensed websites to place bets and gamble in unlicensed online casinos.
Experts warn that this behaviour can result in them becoming gambling addicts later in life.
A large number of websites which take bets do not ask for age verification and one which allows betting on the popular competitions is CS:GOLounge.
The site, which is registered in Costa Rica, took more than £800million of 'skin' bets last year - and five per cent of their traffic comes from the UK.
What's more, a third of its visitors are under the age of 18 and the figures suggest British children bet more than £12m worth of skins on the website in 2015.
The Gambling Commission is now concerned about children placing bets on eSports.
Sarah Harrison, chief executive of the Gambling Commission, said: 'Is there a risk of it being attractive to or played by young people?
'We are seeing real challenges here and will use our powers to the full, including taking criminal action where we see betting and gambling that isn't licensed.'
Neil McArthur, general counsel at the Gambling Commission, was quoted in The Times saying: 'We are concerned about virtual currencies and 'in-game' items, which can be used to gamble.
'Any operator who is offering unlicensed gambling must stop - or face the consequences.
'We expect operators offering markets on eSports to manage the risks - including the significant risk that children and young people may try to bet on such events given the growing popularity of eSports with those who are too young to gamble.'
Teenager Daniel Edwards revealed he gambled on dozens of professional contests already this year.
The 16 year old added that skin betting was a 'huge' part of the game and is the only reason why he watches the competitions.
The makers of Counter Strike, Valve Software, is now trying to crack down on skin betting.
A legal action was taken in the US against the game developer and several websites, alleging that Valve Software made profits from the gambling.
The case also accuses British video blogger Tom Cassell of 'actively promoting CSGOLotto as a gambling service, including to minors'.