Saudi Arabia has given Britain 10 days to halt a fraud investigation into the country's arms trade - or lose a £10 billion Eurofighter contract.

The contract supports up to 50,000 British jobs and there are now fears that the deal may go to France.

The Saudi government is on the verge of cancelling the contract - an extension of one brokered by Margaret Thatcher 20 year ago - because of a Serious Fraud Office investigation into allegations of a slush fund for members of the Saudi royal family, according to authoritative sources.

Tony Blair has been told that the deal faces the axe in 10 days unless he intervenes to bring the two-year investigation to a close.

The Saudis are said to be "outraged" by the probe into the activities of companies linked to BAE Systems. The investigation concerns alleged illegal payments made to members of the Saudi royal family and their agents.

The country's advisers have made clear through diplomatic channels that unless the inquiry is closed, the kingdom's arms business will be taken elsewhere.

The Saudis are understood to have already opened negotiations with the French about buying 36 rival Rafale jets.

The Daily Telegraph has learned that President Jacques Chirac has been to Saudi Arabia twice in recent months to offer full French co-operation on such a deal...