It also displays an image that it claims reveals images of child sexual abuse have been viewed on a computer.
The Windows virus locks a computer and only returns control to its owner on payment of a 100 euro (£86) fine.
It purports to be collecting cash on behalf of German copyright authorities and the country’s national computer security agency.
The virus amounted to “digital extortion” and victims should not pay up, said German police.
The warning about the novel strain of ransomware was issued by Germany’s Federal Criminal police office (the Bundeskriminalamt or BKA).
The ransomware version found by the BKA uses a pop-up window that says the machine has been locked down due to “unauthorised network activity”. The window is crafted to look like it has been put together by Germany’s Federal Office for Information Security (BKI) and its society for prosecution of copyright infringement (GVU).
Text in the window claims that images of child sexual abuse as well as pirated content have been found on the machine. Also displayed is an picture of a child which it claims reveals illegal images have been viewed.
Rik Ferguson, director of security research at Trend Micro, said it was the first time he had heard of ransomware displaying images that users were accused of harbouring.
“It seems that they are attempting to increase the pressure of this kind of emotional blackmail,” he told the BBC.