General Pervez Musharraf will hold talks with Tony Blair today amid controversy over a British government-commissioned report that claims Pakistan's spy network is too close to Muslim terrorists.

The report by the Defence Academy - a Ministry of Defence thinktank - which was leaked to the BBC's Newsnight programme, is said to claim that, indirectly, Pakistan’s Inter-Services Intelligence (ISI) agency had supported al-Qaeda and the Taleban and aided the Madrid and London bombers.

The policy paper is also reported to propose using military links between British and Pakistani armed forces to persuade Mr Musharraf to step down as leader of the country, accept free elections, withdraw the army from civilian life and dismantle ISI.

The Pakistan President reacted angrily to the findings, particularly the suggestion that his intelligence service had in any way colluded with terrorism.

He told the BBC: "These aspersions against ISI are by vested interests and by those who don’t understand ground realities. I don’t accept them at all and I reject them fully... Absolutely, 200 per cent, I reject it...

"We don’t like anybody advising us to dismantle ISI, least of all the [British] Ministry of Defence."

President Musharraf said that he would raise the issues with Mr Blair when he meets him at Chequers tonight. Mr Blair for his part is expected to try to allay the President's anger.

A Ministry of Defence spokesman said that the study in no way represented the views of the ministry or of the Government. "To represent it as such is deeply irresponsible and the author is furious that his notes have been wilfully misrepresented in this manner, "the spokesman said. "Indeed, he suspects that they have been released to the BBC precisely in the hope that they would cause damage to our relations with Pakistan.

"Pakistan is a key ally in our efforts to combat international terrorism and her security forces have made considerable sacrifices in tackling al Qaeda and the Taleban. We are working closely with Pakistan to tackle the root causes of terrorism and extremism."

The leaked British report also "paints a stark picture of failure" on the War on Terror, according to Newsnight, suggesting that the West's fight against extremism was going nowhere with no end in sight.

Echoing a American intelligence report leaked to The New York Times this week, the British document says that the war in Iraq has radicalised Muslims and acted as a "recruiting sergeant" for extremists. President Bush was obliged partially to declassify the report, titled Global Trends in Terrorism, yesterday to quell gloomy rumours about its contents.

The British report’s author, who has a military background and links to MI6, travelled to Pakistan in June with a delegation on a factfinding visit, the BBC programme stated.

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