Tony Blair’s defiant rejection yesterday of calls for a new corruption inquiry into the al-Yamamah arms deal came only days after Des Browne, the Defence Secretary, was given private assurances from Saudi Arabia that it was pressing ahead with the latest lucrative contract with BAE Systems.

Mr Blair said that a new inquiry would lead to the “complete wreckage” of vital national interests as he faced down calls to reverse his decision to halt a Serious Fraud Office probe into the £40 billion Tornado aircraft deal.

He was speaking after reports that hundreds of millions of pounds were channelled secretly to Prince Bandar bin Sultan, the former Saudi Ambassador to the US, by BAE Systems with the full knowledge of the Ministry of Defence as part of the deal signed in 1985.

The Prince issued a statement last night “categorically denying” receiving any “improper secret commissions or backhanders”.

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The alleged payments are understood to be central to the investigation by the SFO that was stopped in December after pressure from the Saudi Royal Family. At the time Lord Goldsmith, the Attorney-General, emphasised the danger to national security in justifying the decision, citing Saudi threats to withdraw cooperation on intelligence.

Saudi Arabia was also threatening to withdraw from a current deal to buy 72 Typhoon combat aircraft on which thousands of jobs in Britain depend.

Britain is forbidden by international anticorruption law from taking into account economic factors. Nevertheless, The Times has learnt that Mr Browne visited Saudi Arabia secretly for two days at the weekend in an attempt to ensure that the Typhoon deal went ahead. The Defence Secretary won personal assurances from the Saudi Government that the proposal to sell the combat aircraft to the Saudi Royal Air Force remained on course.

Although Mr Browne also received assurances that the Saudis would continue to cooperate on counter-terrorism issues, critics will claim that the Typhoon contract explained the Government’s determination to close down the inquiry.

The Labour MP Roger Berry, who chairs the Commons Quadripartite Committee, which covers arms deals, said that the latest allegations about the deal must now be properly investigated. He said that if there was evidence of bribery or corruption in arms deals since new laws were introduced in 2001, then it would be a criminal offence. “These matters need to be properly investigated,” he told theToday programme on BBC Radio 4. “It’s bad for British business, apart from anything else, if allegations of bribery popping around aren’t investigated.”

Mr Blair insisted that it had been right to halt the SFO investigation, amid warnings that the Saudis would end cooperation on intelligence and security matters.

“This investigation, if it had gone ahead, would have involved the most serious allegations and investigation being made of the Saudi Royal Family,” he said. “My job is to give advice as to whether that is a sensible thing in circumstances where I don’t believe the investigation would have led to anywhere except to the complete wreckage of a vital interest to our country.”

Faced with the new allegations of huge payments made to Prince Bandar and other middlemen over the Tornado deal, the MoD refused to comment. A spokesman said that all information on the deal was confidential. BAE sources acknowledged that “payments” had been made to “agents” during the al-Yamamah negotiations, but insisted that all such fees had been “approved by both governments”. BAE Systems and the Saudi authorities also deny any wrongdoing.

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