The release of the British-Iranian dual national Nazanin Zaghari-Ratcliffe is being held back by a UK government agency engaging in “every legal roadblock to delay and minimise the payment” to Iran of an acknowledged £400m debt, lawyers for her husband, Richard Ratcliffe, have claimed.

Zaghari-Ratcliffe, who was accused of espionage, has been held in a Tehran jail, sometimes in isolation or on hunger strike, since 2016.

The claim about the agency – International Military Services – was made in a letter sent to the defence secretary, Ben Wallace, who in his ministerial role has 99% control of IMS. The highly secretive IMS now exists solely as a vehicle to manage a £400m debt that an international court has forced the government to accept it owes to Iran.

The debt arose as a result of Britain reneging in 1979 on a contract to provide Iran with an order for 1,000 Chieftain tanks and armoured vehicles.

As a backbencher, Wallace called on the government to speed up the payment of the debt to Iran, but since becoming defence secretary he has failed to reply to or acknowledge the letter sent by Ratcliffe on 6 September setting out how the government has been “playing legal and political games that has been a major cause of Iran’s retaliatory tactics against innocent individuals like Nazanin”.

The letter says the Ratcliffe family find it extremely frustrating that the government claims to be leaving no stone unturned to secure her release but in reality has failed to “explore obvious possible solutions”.

Since a ruling by the permanent court of arbitration in The Hague in 2001, which was re-examined in 2009, the UK has paid money into court but insists it cannot transfer the sum to the Iranian ministry of defence subsidiary Modsaf as the subsidiary became subject to EU sanctions in 2008.

The letter from Ratcliffe’s lawyers claims:

IMS has since 1979 gathered inflation-adjusted interest of £350m to £400m from investments made with the cash owed to Iran.

The Treasury office of financial sanctions implementation has delayed making any decision on an outstanding Iranian government application, first made in 14 March 2017, to pay the £400m debt to the Iran’s central bank, a non-sanctioned body.

The Iranian judiciary in the Zaghari-Ratcliffe case, including in hearings appealing for her release, have at least three times explicitly linked her fate to the debt payment. Arrests or charges of other UK-linked individuals by the Iranian regime can be directly traced back to UK legal developments in the payment of the debts.

Payment of the debt could be made in kind through humanitarian aid or by a permissible exemption from the EU’s sanctions regime.

After successfully resisting an Iranian legal claim that the UK must also pay interest on the sums it owes to Iran, IMS is now threatening to withhold the payment of the money altogether, even if sanctions against Modsaf are lifted.

The lawyers write: “It is alarming to see the UK government channel money and resources into making technical legal arguments in court to avoid making a payment of a sum which they fully acknowledge is due, instead of putting its effort into finding a way of discharging the debt.

“It is striking, and will not be lost on Iran, that IMS has seemingly profited from non-payment of the IMS debt in an amount equivalent to the IMS debt. It is little wonder that Iran views the entire case as the UK government playing legal and political games, which is a major cause of Iran’s retaliatory tactics against innocent individuals like Nazanin.”

Describing the Treasury failure to make a decision on a permit to pay the debt as unfathomable, they argue: “It is plainly within the government’s powers to make an exception for such a payment and it is hard to imagine circumstances of a more compelling need.”

The lawyers add: “The government’s inconsistent back and forth on payment of the outstanding IMS debt has had demonstrably disastrous consequences, not only for Nazanin but for other British citizens. Such political manoeuvring is both reckless and redolent of the government action towards Iran back in the 80s.”

In the letter, Ratcliffe asked for meetings with the defence secretary and the government’s legal advisers, a Commons statement setting out the government position on the IMS debt and an assurance that the defence secretary had been fully briefed by his officials on the issue.

The Ministry of Defence said: “This is a longstanding case and relates to contracts signed over 40 years ago with the pre-revolution Iranian regime. Funding to settle the debt was paid to the High Court by the Treasury and IMS in 2002. It would be inappropriate to comment further while litigation continues.”

Government sources said efforts were underway to arrange a meeting with Ratcliffe at senior level as requested.