PARIS, Aug 3: Libya has reached a major arms deal with the European aerospace giant EADS, the first since a weapons embargo was lifted on Tripoli in 2004 and a potential source of embarrassment for French President Nicolas Sarkozy.

French Defence Minister Herve Morin confirmed Friday that a letter of intent had been signed for the sale of Milan anti-tank missiles and a radio communications system worth, according to a Libyan official, 296 million euros ($405m).

News of the deal was set to fuel controversy, coming the week after Sarkozy and his wife Cecilia played a key role in brokering the release of six foreign medics sentenced to life imprisonment in Libya. The five Bulgarian nurses and Palestinian doctor were flown home last week after an eight-year incarceration on charges of deliberately infecting hundreds of Libyan children with the Aids virus.

Sarkozy, who travelled to Tripoli to sign a nuclear and military cooperation agreement a day after they were freed, has presented their release as a success of French and European diplomacy and denied any link to an arms deal.

But Libyan leader Moamer Kadhafi's son, Saif ul-Islam Kadhafi, said in an interview published on Wednesday that the resolution of the medics' case had paved the way for the signing of major weapons contracts.

The leader of the opposition Socialist Party, Francois Hollande, demanded a parliamentary enquiry to decide if the government behaved inappropriately.

“If there was no exchange, if there was no bartering, why sign a military agreement with the Kadhafi regime, which has been responsible for terrorist acts, which has been a rogue state?” he asked.

Morin said the missile accord was “an agreement between a company and a country,” which had long been in the negotiating pipeline, and that the sale had been approved by the government of Sarkozy's predecessor Jacques Chirac in February 2007.

He said EADS executives had been in Libya for the past six weeks to hammer out details of the contracts.

“We have to be clear about this: there is no longer an embargo, Libya is a country that has given up its entire military nuclear programme, and which fully accepts inspections from the IAEA,” the UN's atomic watchdog.—AFP