In an email seen by The Telegraph, internet giant Amazon has asked customers to take the self-balancing, two-wheeled scooters to a local recycling point for electronic equipment.
John Lewis and Argos also said they had stopped selling hoverboards after reports emerged of the popular Christmas gift catching fire and exploding.
Estimates suggest around 500,000 people in Britain have bought hoverboards as Christmas gifts. A further million are considering it, according to the watchdog Electrical Safety First.
It had been thought that those at risk had bought cheaper, unbranded imports from China.
Electricians who tested the imports found many had "illegal and dangerous" plugs and "inferior" batteries that failed during charging.
But now it has emerged that a hoverboard made by Swagway, one the leading brands, caught fire in New York last week.
The retail watchdog set up to protect customers of major shops called on all hoverboard sellers to offer a returns amnesty by waiving their restrictions on refunds.
Dean Dunham, the retail ombudsman, said: "I urge UK retailers to take the responsible step of removing unsafe hoverboards from sale.
"Consumers who have already purchased a hoverboard should contact the retailer and for their written assurance that it's safe and in particular that it has a compliant plug with a fuse."
John Lewis said it would consider refunds outside its normal 14 day returns period on a "case by case" basis.
A spokesman for Argos said customers with concerns about its Nevaboard products, which it has taken away for testing, could obtain a full refund no matter when they bought the products.
Amazon customers with models suspected to be faulty will be issued with automatic refunds for the full price, between £200-£500, within days.
Lewis Dawkins, 19, from Walsall, was one of the first to receive Amazon's email alert. Mr Dawkins, who runs a live blogging website on computer games, had bought a RioRand Two Wheels Self Balancing Electric Scooter With Key Switch, but experienced no problems.
"I was watching the news about how these things are dangerous when I received the email," he told The Telegraph.
"I wasn't expecting to get a refund - my hoverboard has had no problems and I've had it for four months.
"I don't use it that much any more anyway - it was fun for a while then just gets boring. Like most trends I think this time next year hoverboards won't be on people's Christmas lists."
Amazon has stopped selling all hoverboards while it investigates. It confirmed that it had sent the emails and would be processing refunds, but declined to say how many customers were affected.
It has removed all hoverboards from its website, including Swagway models. A spokesman for Swagway was unavailable to comment on the fire incident at a family home in Chappaqua, New York on December 6.
National Trading Standards is understood to be "overwhelmed" by a huge spike in hoverboards imports as retailers respond to a surge in popularity ahead of Christmas.
Officials are working with the Electrical Safety First charity to find a quicker way to spot potentially faulty models as they struggle to cope.
More than 15,000 of 17,000 self-balancing scooters analysed at borders since October 15 have been deemed unsafe and detained.
Stephen Curtler, of Electrical Safety First, said the batteries used the same technology as e-cigarettes and mobile phones, but the risk of injury was greater as they were "about 10 times the size".
Last week, London teenager Nawaf Al-Tuwayan was crushed to death after falling off hoverboard into the path of oncoming bus, becoming first person to die as result of accident involving self balancing scooter.
Nawaf, 15, who was originally from Saudi Arabia, was on an errand for his mother in Alperton, north west London, last Thursday evening, when he fell off the hoverboard as the 224 bus approached.
Paramedics struggled to save his life but he died at the scene.