Investigators working on the fraud probe into Saudi arms deals were told they faced "another 7/7" and the "loss of British lives on British streets" if they continued the inquiry, secret papers reveal.

Saudi Arabia's rulers threatened to make it easier for terrorists to attack London unless the corruption investigation by the Serious Fraud Office (SFO) was stopped, according to documents shown to the High Court.

The previously secret files reveal the warning by the Saudis that they would go ahead and cut off intelligence links with the UK about potential terror strikes and suicide bombers.

It was alleged in court that Prince Bandar, the head of the Saudi national security council, was behind the threats to withold information.

During the hearing, he was accused of flying to Britain in December 2006 and issuing the warning which forced Tony Blair to call for an end to the investigation into alleged bribery and corruption involving deals between British arms firm BAE Systems and Saudi Arabia.

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Lord Justice Moses said yesterday that the Government appeared to have simply "rolled over in the face of" Saudi threats that they would pull out of lucrative arms contracts if the bribery investigation went ahead.

He also attacked Mr Blair for "holding a gun" to a prosecutor's head to make sure he dropped the probe.

The former Prime Minister was singled out for cricicism during the case in which two pressure groups are challenging the decision by the director of the SFO to drop the investigation.

Dinah Rose QC, for the groups, also accused him of overstepping the mark by applying "irresistible pressure" to ensure the probe was halted.

It also emerged that 24 hours after Foreign Office officials met Prince Bandar, a Saudi national security adviser, No 10 informed the Attorney General they wanted to make further representations on the case.

Three days later Mr Blair wrote to the Attorney General.

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