A Tanzanian middleman of Indian origin, who has a long-standing relationship with military and government figures, has admitted that the sum was covertly moved to a Swiss account by BAE Systems, which is under investigation by the Serious Fraud Office, a British newspaper claimed today.

The alleged payment, which was 30 per cent of he contract value, was put into the account by BAE's offshore company Red Diamond, The Guardian stated.

The Serious Fraud Office has interviewed Sailesh Vithlani, who controlled the Swiss account, and his business partner Tanil Somaiya. Both are Tanzanians of Indian origin.

The World Bank described the deal with Tanzania, one of the poorest countries, as unnecessary and wildly expensive.

Vithlani declined to comment when asked if he had paid money to third parties outside Tanzania, the report said.

Britain's Prime Minister Tony Blair supported the 2002 sale but former cabinet minister Clare Short said she and the Chancellor, Gordon Brown, opposed it.

The SFO, which was recently forced to abandon its investigation into commissions allegedly paid by BAE on a massive arms contract with Saudi Arabia, is now focusing its attention on Tanzania.

In Dar es Salaam, Tanil Somaiya told the Guardian that British police had already flown out to trace and interview both of them as potential witnesses.