The Zambian president has responded to the British government’s suspension of aid payments to the country amid allegations of corruption and fraud by sacking a senior minister.

The UK is among several nations to halt funds to the country.

A report this week by Africa Confidential alleges that up to $4.7m (£3.5m) in aid payments may have been embezzled. Other countries including Finland, Sweden and Ireland have also suspended aid to Zambia, pending the outcome of the far-reaching investigation.

Initially, on Tuesday, Zambia’s information and broadcast minister Dora Siliya had denounced the reports as “misleading and false” . She said that as far as the Lusaka was concerned no funding had been suspended and condemned the Africa Confidential report as “false” and “half truths or purely untruths”.

But in the early hours of Wednesday, Siliya noted a change in the government’s positon on her Twitter account, stating: “His Excellency, President Edgar Lungu has acted swiftly, relieving the Honorousable E Kabanshi as minister of community development following the misuse of funds allegations in her ministry.”

Zambia ranks 37 out of 100 in the Transparency International (TI) corruption scale – 0 being the most corrupt. Until the suspension, the UK was due to contribute £47m in overseas aid to the country for the year 2018-19.

The investigation alleges wide-scale corruption in three separate frauds at the heart of the Zambian government and involves international aid payments being diverted from key departments such as health, education and community development .

Criticism has been levied at President Edgar Lungu, who planned to officially increase the social fund scheme which catered for 257,000 households to 700,000. The report says the additional payments were never made and the funds were fraudulently misappropriated. Zambia’s ministers are accused of being aware of the fraud and taking no action.

Warehouses controlled by the health ministry are said to to have been robbed of vast quantities of drugs paid for by aid. Officials are alleged to have been involved in the purchase of fake pharmaceuticals.

The dossier prepared by Africa Confidential goes on to allege that the country’s ministers have plundered social spending accounts and pension funds to pay for ministerial trips and other unauthorised spending, resulting in delays to the payment of pensions and civil service salaries. Defending the payment delays, another minister blamed the current government for failing to collecting sufficient revenue.

The education department fraud is alleged to have gone on since 2012 and is said to have been orchestrated by misuse of the financial management information system, put in place to manage the aid budget, to improve accountability and prevent diversion of funds. It is understood that auditors notified the Department for International Development (DfID) of their concerns in June, after questionable payments to shell companies were discovered.

The postal service, Zampost, which handles cash transfer payments to poor people is being formally investigated following the allegations of the diversion of $4.7m.

The dossier alleges that Zambia’s cashflow crisis worsened after $95m was borrowed to buy two two C27-J Spartan military planes from Italian arms manufacturer Leonardo, and a $500m deal to purchase Israeli defence equipment. In addition to a deal with Russia to purchase aircraft, the country’s recent spending on defence and private jets amounts to more than $1bn.

The deputy editor of Africa Confidential, Andrew Weir, told the Guardian: “We stand by our sources of information and our level of reporting.”

The UK’s suspension of payments awaits the outcome of the investigation in which auditors will seek to interview more than 400 individuals.

A spokesperson for DfID said “The UK maintains a zero-tolerance approach to fraud and corruption. While these investigations are ongoing we have placed our direct support to the government of Zambia on hold. There is no evidence that confirms any loss of UK taxpayers’ money.”

Robert Barrington, executive director of Transparency International, said: “Where suspected corruption is involved, it clearly cannot simply mean business as usual. Cutting off aid altogether is one of the options, but it is at one end of the scale, and the UK must be very confident that it has sufficient evidence to take such action. The next steps are to make sure those who have stolen the money are held to account, and to find a way to start the aid flows again in a way that minimises the risks of corruption.

“The danger is that this can punish the poor twice over: ordinary people should not be made to pay for the crimes of their rulers. The one thing we don’t want to see is that the stolen funds end up being laundered through London or the UK’s overseas territories – the UK should also be taking action to get its own house in order.”

Leading Zambian anti-corruption campaigner Reuben Lifuka told the Guardian: “Unfortunately, this is not the first time that this has happened. The government of Zambia put in place mechanisms to prevent this type of crime but when it failed they were not honest enough to bring it to public attention. I call on the government and anti-corruption commission to urgently investigate the allegations as … [this] has widespread implications for those who need assistance.”

Lungu has responded to the suspension of aid payments to the country by sacking a senior minister.