FRESH calls are being made for an inquiry into a £40 billion arms deal with Saudi Arabia amid reports that hundreds of millions of pounds were secretly channelled to a Saudi prince.

It has been reported that more than £1 billion was paid into accounts controlled by the former Saudi ambassador to the US, Prince Bandar bin Sultan, over a period of at least a decade.

The payments were said to have been made by BAE Systems - the UK's biggest arms manufacturer - with the full knowledge of the Ministry of Defence.

Liberal Democrat Treasury spokesman Vince Cable said that if ministers in either the present or previous governments were involved there should be a "major parliamentary inquiry".

He called for the re-opening of the Serious Fraud Office inquiry into the Al Yamamah deal which was controversially dropped last year after Tony Blair warned that the Saudis could end security co-operation.

The Government is facing fresh calls for an inquiry into a £40 billion arms deal with Saudi Arabia amid reports that hundreds of millions of pounds were secretly channelled to a Saudi prince.

There has been no response so far from BAE although the company has always denied any wrongdoing.

Prince Bandar was said by the BBC and The Guardian to have refused to comment.

An MoD spokesman said: "The MoD is unable to comment on these allegations since to do so would involve disclosing confidential information about Al Yamamah and that would cause the damage that ending the investigation was designed to prevent."