MUNICH (Reuters) - German prosecutors will investigate possible market manipulation in shares of ProSiebenSat 1 Media after a sharp drop this month following a critical report by short seller Viceroy Research.

The Munich prosecutor's office said it was working closely with market regulator Bafin, which has said that Viceroy breached securities law by publishing the report without prior notification.

ProSieben shares fell by as much as 9 percent on March 6 after Viceroy, founded by British short seller Fraser Perring, questioned the company's accounting practices and said its shares were worth a quarter of their market value.

Viceroy, which has also targeted South African retailer Steinhoff, alleged that ProSieben had overpaid for acquisitions and was inflating revenue from non-cash transactions. ProSieben rejected all of its allegations.

Perring, who stands by his research, said he had not yet received any communication from either Bafin or the Munich prosecutor's office to suggest Viceroy was under investigation regarding ProSieben.

"We would welcome any contact," he said. "They need to hold everyone accountable whether they are long or short."

(Reporting by Joern Poltz; additional reporting by Alasdair Pal in London; writing by Douglas Busvine; editing by Victoria Bryan and Jason Neely)