The row over a James Bond-style 'spying rock' allegedly hidden in a Moscow square by British agents was escalating tonight into the biggest Anglo-Russian spat in a decade as four UK diplomats were threatened with expulsion.

Sergei Ignatchenko, chief spokesman of the Foreign Security Service (FSB), the successor to the Soviet-era KGB, said that the exposure of an alleged espionage ring, centred around a hollowed-out rock packed with surveillance equipment, would have to be resolved at a "political level".

In a statement, Mr Ignatchenko also hinted that the bizarre incident may have serious implications for relations between Moscow and London.

Commentators have warned that the Kremlin will also use the revelations, broadcast across Russia last night in a documentary on Rossiya state television, as ammunition in a political campaign to restrict the funding and activities of foreign-backed human rights and pro-democracy non-governmental organisations (NGOs).

Footage taken from hidden cameras showed what the programme claimed were British officers walking past the boulder, lying innocently in a leafy square on the outskirts of the Russian capital, and surreptitiously downloading classified data onto palmtop computers.

It also showed what were said to be local agents approaching the stone apparently to collect instructions for their top-secret missions.

Unfortunately for the alleged spies, the rock's wiring was temperamental. In one clip, an agent was filmed pretending to relieve himself in shrubs as he fiddled with its sophisticated electronics. In another, the rugby-ball sized stone was picked up and carted away for repairs.

The documentary claimed that four officials from the British embassy and one Russian citizen, allegedly recruited by the British secret service, were engaged in the operation. The Russian citizen has since been arrested.

Crucially, it was alleged that one of the embassy officials involved in the spying ring had also been authorising regular payments to Russian NGOs. The programme-makers concluded that this was proof that NGOs were in the pay of the British secret service.

Moscow has been suspicious of groups that promote human rights and democracy since opposition leaders came to power in uprisings in Georgia, Ukraine and Kyrgyzstan over the past several years. Russian officials have accused Western nations of encouraging regime change in the former Soviet Union by financing NGOs.

"This is the first time we literally caught them red-handed in the process of contacting their agents here and received evidence that they finance a number of non-governmental organizations (NGOs)," the ITAR-Tass news agency quoted Mr Ignatchenko as saying.

In Westminster, Tony Blair did his best to stay out of the row. At his regular Downing Street briefing he told reporters that he had heard about the row only on television.

“I only saw myself on Teletext this morning the business about Russia.

“I’m afraid you are going to get the old stock-in-trade ‘We never comment on security matters’ ... except when we want to, obviously. I think the less said about that, the better," he said.

Details of the Cold War-style intrigue, whose cloak-and-dagger details have been widely likened to those of a John Le Carre plot, were revealed days after President Vladimir Putin, a former KGB general, signed into law a controversial Bill clamping down on NGOs.

Analysts said today that although bizarre, the plot was not implausible. However, the timing of its release has raised suspicions that it is a blatantly political manouevre to garner domestic support for the Bill while silencing Western criticism.

The Foreign Office today said that the allegations made in the documentary were "surprising", but stopped short of saying they were untrue. It denied any improper conduct by British Embassy staff.

A spokesman said:"We are concerned and surprised at these allegations. We reject any allegation of improper conduct in our dealing with Russian NGOs.

"It is well known that the UK government has financially supported projects implemented by Russian NGOs in the field of human rights and civil society. All our assistance is given openly and aims to support the development of a healthy civil society in Russia."

Rossiya showed one document authorizing a transfer of £23,000 last October to the Moscow Helsinki Group, a leading Russian human rights group that has been persistently critical of the Kremlin.

The group’s head, Lyudmila Alexeyeva, who was a Soviet-era dissident, accused the authorities of seeking a pretext to launch a crackdown on NGOs.

"This is an attempt to smear a well-known group with allegations of involvement in espionage activity. They are preparing public opinion for a government move to close us down, which they can now do under the new law," Alexeyeva told the Associated Press.

"This will not stop our activities, though. I managed to keep on working in Soviet times," she said.

Richard Sakwa, Professor of Russian and European Politics at the University of Kent, said he believed Russia was firing a warning shot at Western critics of the NGO's crackdown.

He said: "There is no doubt about it, that the British, and Americans and others, have been active in the spying field, but this is extraordinary. It is likely that they are getting at Britain purely and simply as a way of warning the US."

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