The Indian government has "put on hold" arms purchases from state-owned defence group Denel following protests by Indian MPs over reports that the company paid bribes.

Indian Defence Minister Pranab Mukherjee "has ordered that any purchases being made from the firm may be put on hold", Samir Sinha, India's defence ministry spokesman, said in New Delhi at the weekend.

The defence minister has also ordered an inquiry into the purchase of anti-material rifles, used to destroy military bunkers, from Denel, Sinha said.

Indian MPs, including those from the Congress Party, which heads the country's ruling coalition, objected to arms purchases from Denel after allegations emerged in the media that it paid a UK-based firm, Varas Associates, to influence the Indian government to buy the South African company's products.

"We are busy with a response to the Indian authorities," said Sam Basch, a spokesman for Denel.

The decision to select Denel for the purchase was taken by India's previous Bharatiya Janata Party-led coalition government.

The contract was worth $3,86m.

"Highly sensitive price negotiations were made available to an agency outside the country," said PK Bansal, a Congress Party MP, yesterday in parliament.

The defence minister at the time of the transaction was George Fernandes, now a member of the political opposition. He has denied involvement in any wrongdoing and accused the Congress Party of making false allegations.

Bharatiya Janata Party spokesman VK Malhotra told reporters that the party was open to an investigation.

Indian Prime Minister Manmohan Singh said the accusations of corruption were "unfortunate", according to the Press Trust of India.

The Indian government said on April 20 that action would be taken against officials, including Fernandes, if kickbacks were paid in military procurement during a 1999 conflict with Pakistan in the Kargil border region of Kashmir.

The government decided to refer some cases on Kargil defence procurement to the Central Bureau of Investigation, Mukherjee had said.

Fernandes came under pressure to resign when he was defence minister over allegations that the army had paid too much for caskets for soldiers killed in the Kargil conflict. India lost 527 soldiers in the conflict.

Fernandes resigned in March 2001, when the scandal broke, then returned to the same post in October. He was exonerated by a commission of inquiry of wrongdoing.

The federal investigative agency has been asked to probe as many as 37 defence purchases, including 23 during the Kargil conflict.

The probe also includes the $12,6m deal signed with Denel in August 1999 to supply 9000 rounds of red phosphorous ammunition.

A spokesman for the Central Bureau of Investigation declined to comment.

With acknowledgements to Bibhudatta Pradhan, Antony Sguazzin and the Business Day.