An Italian newspaper claimed to identify one of the key figures in the kidnap and murder of aid worker Margaret Hassan in Iraq today.

La Repubblica, a Rome-based daily newspaper, said that a senior hard-line member of the Association of Muslim Scholars, a leading Sunni clerical group, was involved in the kidnapping.

The report caused controversy in Italy because the article alleged that the same scholar was used as a go-between by the Italian government to pay millions of euros in ransom for kidnapped Italian nationals.

According to La Repubblica, Italy on several occasions negotiated the freedom of its hostages and the ransom payments through the same cleric, who is believed to have links to some insurgent groups in Iraq.

In the case of Hassan, the cleric demanded a $10 million ransom (£5.6 million), said the newspaper, which based its report on leaked documents from Italian police investigation into the kidnapping of Italian citizens in Iraq. The newspaper said British authorities were informed of the ransom but that it was never paid.

The Foreign Office, which has a policy of not paying ransoms in any hostage situation, has always maintained it was unaware of any ransom demand in the Hassan case. A spokeswoman declined to comment on today's reports.

Hassan, 59, who had British, Irish and Iraqi nationality, was abducted by insurgents in west Baghdad in October 2004, as she was being driven to work as head of the Iraq branch of the charity Care International. A video purporting to show her execution was broadcast on Arab television a month later. Her body has never been found.

Today Gianfranco Fini, the Italian Foreign Minister, denied the allegation that Italy had negotiated with terrorists. La Repubblica claimed that Italy paid for the safe return of journalist Giuliana Sgrena, who was kidnapped in Iraq in February 2005 and released a month later.

"Italy did not pay any ransom to obtain the freedom of Giuliana Sgrena in Iraq or any other hostage," Signor Fini said.

A report of the investigation has been forwarded to Rome prosecutors, La Repubblica said, citing police sources. There was no comment from Italian police or prosecutors today.

At least eight Italians were kidnapped in Iraq, and two of them were killed. An intelligence officer who was escorting Sgrena to freedom mistakenly was killed by US fire in Baghdad in March.

The police report cited information from Iraqi police, who told them that a man arrested for Sgrena’s kidnapping said the Italians paid a "large sum", La Repubblica said.

The police report also stated that Italy paid €5 million (£3.4 million) for the freedom of Italian aid workers Simona Pari and Simona Torretta, who were abducted for about 20 days in September 2004, the newspaper reported. A similar amount was later paid for Sgrena alone, it said.

In the case of other Italian hostages, US forces freed three men working as private guards, while a colleague of theirs was killed by kidnappers. Kidnapped journalist Enzo Baldoni was killed before a ransom could be paid, La Repubblica said.

• Saddam Hussein and his lawyers will boycott the next session of the deposed leader’s trial in Baghdad in protest at the alleged bias of the new chief judge appointed to hear the case, his chief lawyer says.

  "There is an unanimous decision by the defence team to not attend Wednesday’s hearing because of the comedy we witnessed in yesterday’s trial," said Khalil al-Dulaimi, an Iraqi lawyer.

  "If (Saddam) was forced to attend, he won’t sit in the place designated for him, but will stand in a corner to protest against the measures taken by the judge. The court hearing yesterday lacked the basics of a fair and honest trial, and the judge was biased against the defendants, who under the law are innocent until proven guilty."

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