AN EXTRAORDINARY legal blunder by Whitehall officials may allow a suspected terror ringleader being held in Britain to go free.

Italian officials claim that Britain has taken so long to extradite Farj Hassan Faraj that a three-year deadline has passed and he can no longer face trial in Milan for plotting bomb attacks in Europe.

The mix-up over Mr Faraj has caused a serious rift with legal authorities in Italy who complain that they handed over one of the alleged July 21 London bombers within two months of his arrest in Rome.

Mr Faraj, 24, has been described as the “European envoy” for the Iraqi terrorist leader Abu Musab al-Zarqawi, who is blamed for car bomb attacks on US and British troops and the murder of Western hostages, including Kenneth Bigley, the Liverpool engineer.

Italian intelligence chiefs claim that Mr Faraj was in direct contact with al-Zarqawi, for whose capture the US is offering a $25 million (£14 million) bounty. They also allege that Mr Faraj was one of the first al-Qaeda-trained operatives sent to Europe.

Whitehall is blaming Rome, saying that Italian prosecutors had not told them that the deadline was imminent. Officials in Rome insisted last night that Britain should have known the rules and that despite promises to fast-track the handover of terror suspects, Mr Faraj had been held since May 2002.

Britain, embarrassed by missing the deadline, is now considering what to do with the Libyan-born suspect, who Italian police claim was linked with a plot to attack an underground network in Europe.

Italian prosecutors are bitter at the failure to deport Mr Faraj after a British judge finally approved his extradition last December. But the case stalled while Charles Clarke, the Home Secretary, allowed Mr Faraj’s solicitors time to make final representations despite also urging European allies to step up their co-operation in dealing with terror suspects.

Indignant officials in Rome say that they recently rushed through the extradition to the UK of Hussain Osman, who is alleged to have been one of the July 21 bombers in London.

A Home Office spokesman confirmed last night that the extradition warrant for Mr Faraj had been withdrawn.

The Special Operations Group of Italian carabinieri say they were tracking a gang allegedly led by Mr Faraj and claim to have intercepted calls from al-Zarqawi.

One of the group was reportedly heard discussing a plan “which might find 400 people dead in a subway”. Six of the gang were arrested but Mr Faraj travelled to London on a fake passport and applied for asylum. He was arrested after a tip-off from the Italian police.

Mr Faraj was allegedly trained at a camp in Herat, in Afghanistan, run by al-Zarqawi. He was reportedly sent to Europe to recruit a cell soon after the September 11 attacks.

Under EU rules he should be deported to Italy, where he had first applied for asylum. The alternative is to hold him until Britain can sign a hoped-for deal with Libya to take citizens deported from Britain.

His lawyers oppose this, claiming that he would be tortured if he returned to Libya.

Britain has long been criticised for the slow pace of its extradition. Home Office officials say that Mr Faraj was being held under old extradition procedures that have now been speeded up under a 2003 Act.

• The policing bill for the July bomb attacks in London and subsequent security measures stands at £77 million, it has been reported.

  The Police Review magazine also said that one of the suicide bombers who attacked London on July 7 was filmed arguing with a cashier hours before the bombings. A counter-terrorism expert told a seminar that Shehzad Tanweer was seen arguing in a petrol station as he drove to Luton railway station on the day of the attacks.

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