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US diplomats forcefully protested against the UK government's decision to halt an investigation into defence firm BAE Systems, according to a newspaper report.

The Financial Times states that a US official lodged the verbal protest at the beginning of this year.

Its report claims that the US government was unhappy with the government blocking the Serious Fraud Office (SFO) probe into a £6 billion arms deal between BAE and Saudi Arabia.

The contract, which provided the Saudi royal family with 72 Eurofighter fighter planes, came under fire when allegations emerged that the Saudis were using a private account to siphon off funds.

But the SFO's investigation into such claims was called off in December because of national security concerns. Britain's attorney general, Lord Goldsmith, explained to parliament that continuing the investigation "would cause serious damage to UK-Saudi security, intelligence and diplomatic cooperation".

The Financial Times reports that US diplomats told their British counterparts that this decision contravened anti-bribery agreements reached by the Organisation for Economic Cooperation and Development.

BAE, whose shares fell by ten per cent when news of the probe emerged and recovered by seven per cent when the SFO dropped it, said in its corporate responsibility report published earlier this month that "a timely conclusion to the investigation was required".

"It is not reasonable or just that such investigations and associated allegations which are unsupported by evidence, should continue indefinitely," the company said.

Shares in BAE by fell by 0.54 per cent in early morning trading today.