The US Embassy protested to Britain earlier this year over Tony Blair’s decision to halt the fraud investigation into BAE Systems.

The Foreign and Commonwealth Office (FCO) confirmed that an American diplomat made the formal protest in January after the Prime Minister cited “national security” as the pretext to drop the inquiry.

The Serious Fraud Office had been investigating allegations that bribes were paid to Saudi officials as part of the multi-billion pound Al Yamamah contract for Tornado warplanes signed in the 1980s.

The Saudi leadership had made it clear to Britain last year that if the probe continued it would jeopardise a future multi-billion pound BAE Systems contract for Typhoon aircraft.

British officials said that the protest was made by a diplomat to his opposite number at the Foreign Office and did not involve the US ambassador or senior Government officials.

“These formalities happen all the time, it is a part of diplomacy,” said a British official.

But an American official said that they were treating the matter seriously and described the meeting as “animated”, a diplomatic euphemism for a row.

Both countries are signatories of the Organisation for Economic Co-operation and Development (OECD) anti-corruption convention.

Britain insists that the convention cannot supersede a country’s national security interests. But Washington, which has championed the campaign against international corruption, insists that the “national security” cannot be used as an excuse to block criminal investigations.

“We asked the British for an explanation for their decision,” said one American diplomat. “We think this convention is a very important document.”

The row could have serious repercussions for BAE Systems, which is Europe’s largest military contractor. Last year its profits tripled, largely as a result of increased operations in America, which accounted for more than a third of its sales.

Whitehall sources said that the US protest may have been partly inspired by Americans’s own defence interests.

“There is a lot at stake with these big aerospace contracts,” said one source. “I would expect the Americans to protest. If our contract with Saudi Arabia fell through, the Americans would almost certainly win it.”

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