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Allegations that a Saudi prince received money totalling millions of pounds from Britain's largest arms dealer have prompted fresh calls for an inquiry into a controversial defence deal.

Claims that BAE Systems secretly paid more than £1 billion into bank accounts controlled by Prince Bandar bin Sultan, with the knowledge of the Ministry of Defence (MoD), have been made by the BBC's Panorama programme.

An investigation by the programme is reported to have uncovered evidence that during a period of over ten years up to £120 million was annually paid into two accounts in Washington which were a "conduit" to the former Saudi ambassador to the US.

It is claimed that money from one of the accounts was subsequently used to pay for the prince's private jet.

According to Panorama, the payments were secretly written into the contract BAE secured with Saudi Arabia over the al-Yamamah arms deal in the 1980s and were uncovered during a probe by the Serious Fraud Office (SFO).

The government came under fire last year after it controversially dropped the corruption investigation, citing national security concerns.

Prince Bandar was the architect of the 1985 deal to supply Saudi Arabia with warplanes, which was authorised by Margaret Thatcher's Conservative government.

BAE has repeatedly refuted claims that it paid bribes to secure the £43 billion arms contract, but fresh allegations about the deal have led to new calls for an official inquiry into the issue.

Liberal Democrat deputy leader Vince Cable, who recently broached the matter in parliament, said there should be a "full parliamentary inquiry" into whether the government knew about the payments and had therefore undermined its own anti-corruption legislation.

"It is unforgivable if the British government has been actively conniving in under-the-counter payments to a major figure in the Saudi government," he told The Guardian newspaper.

An MoD spokesman said the department was unable to comment on the allegations "since to do so would involve disclosing confidential information about al-Yamamah and that would cause the damage that ending the [SFO] investigation was designed to prevent".