The Serious Fraud Office has decided to drop its investigation into BAE Systems over the Al-Yamamah deal.

Citing 'national and international security,' the fraud-buster said it would drop its probe.

The probe was said to have focused on slush funds for senior Saudis, and had caused a diplomatic row, as the Saudi royal family indicated embarrassment over the deal.

Though the SFO played down any economic considerations, there had been fears the UK could lose out on lucrative arms deals from the Middle East as a result of the investigation.

'This decision has been taken following representations that have been made both to the attorney general and the director of the SFO concerning the need to safeguard national and international security,' the body said.

'It has been necessary to balance the need to maintain the rule of law against the wider public interest. No weight has been given to commercial interests or to the national economic interest.'