By ANDREW GRICE
Britain faced deep international embarrassment last night after the former cabinet minister Clare Short claimed that its security services spied on Kofi Annan, the United Nations Secretary General, in the run-up to last year's Iraq war.
A furious Tony Blair condemned Ms Short as "deeply irresponsible" and accused her of threatening Britain's national security by attacking the security services.
But last night she returned to the attack, claiming that the Prime Minister had stopped short of denying her claims because he knew they were true.
In New York, there were frantic efforts by British officials to reassure Mr Annan and his team about the conduct of the security services.
The UN said that if the bugging was true, it was illegal and should be stopped immediately.
"We want this action to stop if indeed it has been carried out," said Mr Annan's spokesman, Fred Eckhard.
He said spying activities would undermine the confidential nature of diplomatic exchanges and that people speaking to Mr Annan were "entitled to assume that their exchanges were confidential.
"We would be disappointed if this were true," he said. "We are throwing down a red flag and saying, 'if this is true, then stop it."
Mr Annan has every reason to feel personally betrayed by the British, with whom he has close relations, and who have been strong supporters of him as secretary-general.
Mr Blair was thrown on to the defensive at his monthly Downing Street press conference, when the Iraq war again returned to haunt him. He struggled to answer Ms Short's unprecedented allegation and explain the decision to drop the case against the GCHQ whistleblower Katharine Gun.
Some Labour MPs expressed concern that his failure to give clear answers -- which he put down to national security and legal reasons -- would add to his "trust problem" with the public.
The former International Development Secretary, who resigned from the cabinet after the war, stunned the political establishments on both sides of the Atlantic when she claimed on BBC Radio 4 that Britain had spied on the UN chief during the critical period when it was seeking a second UN resolution to give authority for military action.
Asked whether British intelligence was involved, she said : "I have seen transcripts of Kofi Annan's conversations.
In fact I have had conversations with Kofi in the run-up to war, thinking 'Oh dear. There will be a transcript of this and people will see what he and I are saying.' "
Mr Blair refused to comment on any intelligence operation but insisted that they were conducted in line with domestic and international law.
He stressed that he was not confirming that Ms Short's allegation about the security services was true.
"It really is the height of irresponsibility to expose them to this type of public questioning and scrutiny in a way that can do absolutely no good to the security of this country," he said.
The UN view is that bugging of UN premises is specifically banned by three international treaties governing the world body.
Ms Short rejected calls by Labour MPs for her to keep silent by going even further in another interview last night.
On Channel 4 News, she dismissed Mr Blair's criticism of her as a "distraction" and declared that it was the Prime Minister who had brought the security services into disrepute by exaggerating their account of the threat posed by Iraq.
"Either he has to say it's true we are bugging Kofi Annan's office which he doesn't want to say or he's got to say it's not true and he'd be telling a lie or he's got to say something about national security....There is no British national security involved in revealing that Kofi Annan's private phone calls have been improperly revealed and there is no danger to British security services by making this public."
Asked if Britain was intercepting Mr Annan's phone calls, she replied: "No. We are getting transcripts of them and I think that's wrong and is disrespectful."
After some Labour MPs suggested she should be disciplined by the Labour Party, be prosecuted under the Official Secrets Act or even lose her status as a privy councillor, she said he was "not trembling in her shoes."
Mr Blair said he would consider disciplinary action but his advisers believe that removing the Labour whip from Ms Short would merely turn her into a martyr and prolong the party's divisions over Iraq.
Last night Downing Street announced a formal review of the Official Secrets Act amid concern among ministers that it could be impossible to mount a prosecution of someone who leaked information in the hope of averting military conflict.
There were claims yesterday that Lord Goldsmith, the Attorney General, presented two legal opinions which had changed his stance about the legality of war in the weeks before the conflict.
The Prime Minister will again try to switch the political spotlight back to domestic issues in a speech to the Scottish Labour conference in Inverness today but faces another period of turmoil over Iraq and difficult questions over the legality of the war.
Michael Howard, the Tory leader, said: "I'm afraid the situation now seems to be a complete mess. It's about time the Prime Minister got a grip on it and sorted it out." Charles Kennedy, the Liberal Democrat leader, urged Mr Blair to "come clean" about whether Britain bugged Mr Annan's office.
"He cannot use the security services as a shield to duck this question. His administration made a virtue of releasing intelligence information when it suited him to make the case for war. He can't have it both ways."
Although there were shocked reactions from diplomats at the United Nations, many took the revelations in their stride. Spain's ambassador Inocencio Arias said: "Everybody spies on everybody."By Andrew Grice