The peer, the Government's chief legal adviser at the time of the decision in 2005, said he had no regrets because failing to act would have put the UK at risk of terror attack.

And he accused the judges who said the Government and Serious Fraud Office "unlawfully submitted" to threats of failing to live in the real world and undermining a key legal principle.

The SFO had launched an investigation into BAE's £43 billion Al-Yamamah arms deal with Saudi Arabia in 1985, which provided Tornado and Hawk jets plus other military equipment.

Tony Blair, prime minister at the time, said the Saudis had privately threatened to cut intelligence co-operation with Britain unless the inquiry was stopped.

Lord Goldsmith announced in December 2006 that the investigation into the arms company was to be discontinued but it was SFO Director Robert Wardle who took the decision. "We fear for the reputation of the administration of justice if it can be perverted by a threat," the judges in a hard-hitting judgment on Thursday.

But Lord Goldsmith, who has since left the government, said: "I do not regret the decision that was taken. It was of course uncomfortable...but I believe it was the right decision to take, in the public interest, in order to prevent terrorism."

He told Sunday Live on Sky News he had been convinced the case was "doomed to failure" and not worth pursuing further given the risks.

"The consequence would have been that we would have waited for 18 months, all this damage to the country, all this damage in relation to terrorism could have taken place and at the end of the day we would have said 'terribly sorry, but we're not going to proceed with this case in any event'.

"It would have been a dereliction of duty to have taken that view and it would have been absolutely no comfort to people who, heaven forbid, had been injured or lost loved ones in a terrorist attack to say 'we're terribly sorry but we thought we ought to wait 18 months to see if this case could go ahead'."