The Observer quoted the children as saying they had been sold to the sweatshop by their families in Indian states such as Bihar and West Bengal and would not be allowed to leave until they had repaid that fee.
Some, working as long as 16 hours a day to hand-sew clothing, said they were not being paid at the unidentified Gap supplier because their employer said they were still trainees.
The Observer quoted one boy identified only as Jivaj as saying that child employees who cried or did not work hard enough were hit with a rubber pipe or had oily cloths stuffed into their mouths.
The paper said the sweatshop, or "derelict industrial unit," that it found during its investigation in New Delhi was "smeared in filth, the corridors flowing with excrement from a flooded toilet."
The Observer printed a photograph of one of the child workers, and British Broadcasting Corp. television broadcast what it said was footage of the youngsters taken at the sweatshop by an unidentified German TV crew.
The Observer quoted an unidentified Gap spokesman as saying that children did appear to have been caught up in the production process and rather than risk selling garments made by children it would withdraw tens of thousands of items.
"At Gap, we firmly believe that under no circumstances is it acceptable for children to produce or work on garments," the spokesman was quoted as saying.
"These allegations are deeply upsetting and we take this situation very seriously. All of our suppliers and their sub-contractors are required to guarantee that they will not use child labour to produce garments.
"It is clear that one of our vendors violated this agreement, and a full investigation is under way."
Gap said it was taking steps to stop the work order and to prevent the product from ever being sold in its stores. "We are also convening a meeting of our suppliers where we will reinforce our prohibition on child labor," the spokesman said.