LONDON — British Prime Minister Tony Blair yesterday defended his decision to halt a fraud inquiry into a major Saudi Arabian arms deal because it would have led to the “complete wreckage” of vital national interests.

Blair’s comments at a press briefing during the Group of Eight (G-8) summit in Heiligendamm, Germany, followed revelations in the British media yesterday that a Saudi Arabian prince had received huge payments from a British arms company in connection with an arms deal worth more than £40bn .

The BBC’s Panorama programme and the Guardian newspaper said Prince Bandar bin Sultan, formerly Saudi Arabia’s ambassador in the US, had been paid more than £1bn by BAE Systems, Britain’s biggest arms procurer.

A high-level Saudi diplomatic source denied yesterday that the prince had received any commission. “This news is far from being true. These are lies, and they lie a lot about such issues,” the source said .

“Saudi-UK relations are strong, and won’t be affected by these rumours.”

The Al Yamamah deal, signed in 1980 by the government of former prime minister Margaret Thatcher, is on record as being Britain’s largest arms contract.

For more than 20 years, successive British governments have claimed they knew nothing of secret commissions, which were outlawed in Britain in 2002.

The Labour government was yesterday facing fresh demands for an inquiry into the deal, after Blair intervened to halt an investigation by Britain’s Serious Fraud Office (SFO) in December.

Blair repeated yesterday that had the fraud investigation continued, Saudi Arabia would possibly have ended all co-operation on intelligence and security matters. “This investigation, if it had gone ahead, would have involved the most serious allegations and investigations being made of the Saudi royal family,” Blair said .

“My job is to give advice as to whether that is a sensible thing in circumstances where I don’t believe the investigation would have led to anywhere except the complete wreckage of a vital interest to our country.”

The fight against terrorism would have been harmed, and thousands of British jobs would have been lost, said Blair.

Meanwhile, Gordon Brown, who is due to succeed Blair as prime minister by the end of the month, signalled his support for stricter controls on arms sales under his leadership. “I hope we will be able to do more on arms sales in the next period,” he told Labour Party supporters at a rally on Wednesday .

According to the Panorama investigation, BAE paid up to £120m a year secretly into two accounts in Washington for more than 10 years.

The payments were said to have been written into secret annexures of the Al Yamamah contract for the “provision of support services” and authorised by Britain’s defence ministry , according to the programme, which is to be broadcast on Monday.

The BBC report said the accounts were a “conduit” to Bandar for his role in the deal to sell more than 100 Tornado fighter jets and other arms to Saudi Arabia.

The payments were used by the prince to finance his private jet, the reports alleged.

The British defence ministry said in a statement yesterday it was “unable to comment on the allegations since to do so would involve disclosing confidential information about Al Yamamah and that would cause the damage that ending the investigation was designed to prevent”.

BAE Systems has in the past denied any wrongdoing, saying that the Al Yamamah programme was a government-to-government agreement, and all payments had been made with the approval of both parties.

The payments were discovered during an investigation by the SFO, which was unexpectedly stopped at the request of the government in London last December, citing national security concerns. Sapa-DPA, Reuters

With acknowledgements to Sapa, Reuters and Business Day.