A highly critical report by U.K. lawmakers has shone a light on deficiencies in the government's ability to spot national security risks after a deal struck between BT and Chinese mobile giant Huawei in 2005.



A parliamentary committee has called into question how Huawei was allowed to supply equipment to BT as the U.K telecommunications company embarked on a major 10 billion pound ($15.6 billion) upgrade project and has also raised new issues about Huawei's supposed links with the Chinese State.



"The difficulty of balancing economic competitiveness and national security seems to have resulted in stalemate. Given what is at stake, that is unacceptable," the report, released late on Thursday, said.



"There is no guarantee: any weaknesses or vulnerability in equipment deployed on U.K. networks could – through no fault of the operator – have serious security implications."

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BT first notified government officials in 2003 of Huawei's interest in a deal and the possibility that it may have access to its CNI (Critical National Infrastructure). Whoever the issue arose because these officials only told ministers in 2006 of the deal when a contract had already been signed between the two companies.



Further concerns were raised by the report on whether ministers would have had power to block a deal or how the government would react in the event of a cyber attack, if it was detected.



"Most of the concerns surrounding Huawei relate to its perceived links to the Chinese State. As the Committee noted in its last Annual Report, 20 percent of detected cyber attacks against U.K. interests demonstrate levels of sophistication which indicate that they are more likely to be State-sponsored, or related to organized crime," the report said.



"China is suspected of being one of the main perpetrators of State-sponsored attacks, which are focused on espionage and the acquisition of information. In this context, the alleged links between Huawei and the Chinese State are concerning, as they generate suspicion as to whether Huawei's intentions are strictly commercial or are more political."



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Huawei has previously strongly denied any links to the Chinese State to CNBC and the report provides no evidence that it has given unauthorized access to any third party or that it is being used in the U.K. as a vehicle for espionage. However, it also questions the lack of clarity about its financial structures and references an assessment by the U.S. House Permanent Select Committee on Intelligence (HPSCI) recently which concluded that "the risks associated with Huawei and ZTE's provision of equipment to U.S. critical infrastructure could undermine core U.S. national-security interests".



Huawei, now also a giant in the mobile smartphone world, is a global information and communications technology solutions provider that operates in over 140 countries. It says it serves more than one-third of the world's population and is the world's second-biggest supplier of telecoms equipment. The company has recently launched a PR campaign and published several notes on its cyber security policy explaining that it has invested substantial resources into its efforts to provide the best possible assurance.



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U.K finance minister George Osborne was quick to respond to the report late on Thursday, calling Huawei a long-term valued investor in the U.K.



"It is a personal priority of mine to increase trade links between the U.K. and China and I cannot emphasize enough that the U.K. is open to Chinese investment," he said, according to Reuters news agency.

—By CNBC.com's Matt Clinch. Follow him on Twitter @mattclinch81.