BRITAIN put itself on a collision course with Argentina over disputed sovereignty of the Falkland Islands when it gave explicit support to a GBP600m plan to develop oil reserves in the South Atlantic on Wednesday.

Barely three weeks since the two countries clashed over the issue at a G20 summit and 30 years on from military conflict, the British Foreign Office announced the hydrocarbons exploration was a legitimate business.

The government's backing for Premier Oil's move to buy a 60 per cent stake in a licence to explore and develop oil off the Falklands will infuriate Argentina, which has threatened criminal and civil charges against firms operating in the disputed area.

But a Foreign Office spokesman said: “We have been unequivocal in our support for the people of the Falkland Islands as they seek to expand their economy. This [drilling] is a core principle of self-determination, and one which we are determined to uphold.”

Premier, a FTSE 250 company, has bought the holding from Rockhopper Exploration, which has been seeking a partner to help develop the Sea Lion field prospect which is believed to hold over 300m barrels of oil.

“Rockhopper has made excellent progress in commercialising the Sea Lion project which offers attractive returns and fits well with Premier's proven operating and development skills,” said Simon Lockett, Premier's chief executive.

“This transaction extends our strong growth profile beyond 2015 and offers both exploration and development upside for our shareholders. We look forward to working closely with Rockhopper and the Falkland Islands government on this very exciting project,” he added.

Sources close to Premier confirmed that the company, which also holds stakes in the UK North Sea and Africa, had taken advice from the British government before closing the deal with Rockhopper.

“Obviously there is an element of political risk here but there is political risk everywhere including the North Sea where the tax regime keeps changing. The [UK] government clearly backs the Falklands government and we think the Argentinians are sabre-rattling for internal political reasons. We are not going to see military action,” said the source.

The City — London's financial district — showed no concerns about the controversial deal, pushing up Premier's share price by 3 per cent to 370p while Rockhopper's rose 11 per cent to 308p.

Argentina has also previously written to Rockhopper and other UK-based companies searching for oil off the Falklands saying it will press criminal and civil charges over “illegal” drilling.

The Foreign Office spokesman said Argentina's legal threats had no basis in international law, saying their laws did not apply to the Falklands. “The fact that oil companies are able freely to raise capital on the markets suggests that international business take this view too,” he added.

The British government announced last month that it would be holding a referendum on the islands to try to bury the issue of sovereignty once and for all.

But ministers in Buenos Aires have made increasingly aggressive statements about their claims to the Falklands, or the Malvinas as they are called in Argentina.

Last month the country's president Cristina Fernandez de Kirchner tried to personally hand over claims documents to David Cameron at a G20 summit in Mexico. — The Guardian, London