Last updated at 10:34 01 December 2007

MI5 has accused China of spying on British firms, it emerged last night.

In an unprecedented move, the security service claimed Beijing had carried out espionage on key areas of the UK economy including the computer systems of big banks.

Jonathan Evans, MI5's director-general, sent a letter this week to 300 chief executives and the security bosses of financial services firms warning of attacks by 'Chinese state organisations'.

The alert was posted on a secure Government website and warns British companies doing business in China that they are being targeted by the Chinese Army, which is reportedly trying to steal confidential information over the internet.

The summary is carried on the website of the Centre for the Protection of the National Infrastructure.

It says: 'The contents of the letter highlight the following: the Director-General's concerns about the possible damage to UK business resulting from electronic attack sponsored by Chinese state organisations, and the fact that the attacks are designed to defeat best practice IT security systems.

'The letter acknowledges the strong economic and commercial reasons to do business with Chinas but the need to ensure management of the risks involved.'

A report in The Times said a number of unidentified firms had been compromised in recent months by Chinese attacks.

The victims include one of Europe's largest engineering companies and a large oil company.

However, a source familiar with the MI5 warning said that the warning applied to provincial law firms and businesses just as much as it did to the big firms in the City of London.

Martin Jordan, of accountants KPMG, who has seen the contents of the letter, said: 'If the Chinese know that a British firm is trying to buy a company or other assets such as land in China then they are using every means at their disposal to discover how much money the British company is prepared to spend for that asset.'

A security expert who has seen the letter said the tactics used by the Chinese hackers included 'custom Trojans', computer programs which hack into the network of a firm and feed back confidential data.

Last night the Home Office refused to comment on what it termed 'leaked private correspondence'.

A spokesman for the Chinese Embassy in London said he was unaware of the allegations and had not received any complaints from British authorities.

An 18-year-old was arrested by the FBI yesterday, accused of selling to gangsters a computer program which could have been used to steal £10million.

Police say the unnamed boy, from Hamilton, New Zealand, was the kingpin of an international cyber-crime network.

The program he wrote allowed thieves to take over other computers using the Internet.