Samsung Electronics is recalling its flagship Galaxy Note 7 smartphone and said that battery problems were behind phones catching fire.
The decision follows reports in the US and South Korea of the phone "exploding" during or after charging.
The massive recall of one of Samsung's flagship devices is an embarrassing setback for the world's biggest selling smartphone maker. The Note 7 was unveiled just a month ago, and big rival Apple (AAPL, Tech30) is expected to show off its new smartphone next week.
Samsung (SSNLF) said Friday it had found a problem with the battery in some of the phones and was halting sales. In the coming weeks it will offer customers a new product for free to replace all 2.5 million Galaxy Note 7s that have been sold.
The South Korean company said that customers, who had already bought the phone, would be able to swap it for a new one.
The executive, Koh Dong-jin, who declined to comment on the number of phones needing replacement, said that Samsung had sold 2.5 million of the premium devices so far.
The manufacturer plans to replace not only phones with faulty batteries sold to consumers, but also retailer inventories and units in transit.
"I can't comment on exactly how much the cost will be, but it pains my heart that it will be such a big number.
"It had been difficult to work out which phones were affected among the 2.5 million Note 7s sold.
"There was a tiny problem in the manufacturing process, so it was very difficult to figure out,'' the.
"It will cost us so much it makes my heart ache. Nevertheless, the reason we made this decision is because what is most important is customer safety," Koh said.
The scale of the recall is unprecedented for Samsung, which prides itself on its manufacturing prowess.
While recalls in the smartphone industry do happen, including for rival Apple Inc (AAPL.O), the nature of the problem for the Galaxy Note 7 is a serious blow to Samsung's reputation, analysts said.
The firm said it would take about two weeks to prepare replacement devices.
According to Samsung, the phone has been launched in 10 countries so far but with different companies supplying the batteries.
The recall comes just one week ahead of an expected presentation of a new iPhone model from its main rival Apple.