LONDON, Jan 16: Prime Minister Tony Blair is finding himself severely sandwiched between a demand from the OECD to justify the closing down of investigation by Serious Fraud Office (SFO) into the alleged corruption involving Saudi royals and British arms company BAE systems and the belated MI6 statement that contrary to the government claim it had not said that the SFO inquiry was threatening national security.

In a controversial move last month, Tony Blair ordered the Serious Fraud Office inquiry to be halted, and said he took the responsibility for doing so, after BAE lobbied him that it might otherwise lose a lucrative Saudi order for more arms sales.

The attorney-general, Lord Goldsmith, told parliament before Christmas that the intelligence agencies “agreed with the assessment” of Tony Blair that national security was in jeopardy because the Saudis intended to pull out of intelligence cooperation with Britain. But John Scarlett, the head of MI6, has now refused to sign up to a government dossier which says MI6 endorses this view.

MI6 and MI5 possessed no intelligence that the Saudis intended to sever security links. The intelligence agencies had been merely asked if it would be damaging to UK national security if such a breach did happen. They replied that naturally it would.

Now ministers are under pressure at an international meeting taking place presently to justify why they terminated an important corruption investigation into the arms company BAE Systems. The decision is now the subject of an inquiry by the OECD, which is responsible for rooting out corruption around the world. Britain signed up to its anti-bribery convention which made the payment of bribes a specific criminal offence under UK law in 2002.

The OECD has demanded an explanation of the government’s decision to abruptly close down an inquiry which was investigating secret payments made to Saudi royals.

Whitehall officials will be questioned by 35 other governments at the Paris meeting, which can “name and shame” Britain. As part of the government’s preparations to provide a justification to the OECD, MI6 was asked to sign up to a dossier which made the claim that MI6 “endorsed” Mr Blair’s national security claim, according to those who have seen it.

When it was sent to MI6 headquarters last week, Mr Scarlett, refused. Officials made it clear there were “differences” between the intelligence agencies and the government over the language used by Lord Goldsmith. A source said that Lord Goldsmith’s claims to parliament in December “contained quite a degree of conjecture”. One official said there was “nothing to suggest” that the Saudis had actually warned “if you continue with this inquiry, we will cut off intelligence”.

The dispute echoes the intelligence row about “sexing-up” the Iraq arms dossier, when Mr Scarlett, then head of the Joint Intelligence Committee, was persuaded to endorse false government claims that Saddam Hussein possessed weapons of mass destruction. Sources close to the intelligence agencies say Mr Scarlett was unwilling to again provide cover for ministers by endorsing another set of controversial government claims.