NHS heads threatened to sue one of England’s most admired hospitals for libel, for raising concerns that privatising a key element of cancer treatment would endanger patients’ health.

In an extraordinary move NHS England tried to stop Oxford University hospitals (OUH) NHS trust opposing its controversial decision to let a private firm take charge of cancer scanning.

Lawyers for NHS England said the trust’s concerns, which were shared by doctors, MPs of all parties and cancer patients, amounted to defamation. The view was in a legal letter the NHS sent to OUH, which was seen by the Guardian.

NHS England’s solicitors, DAC Beachcroft, issued the warning last August. It came when relations between the body that runs England’s health service and the Oxford trust had become very strained over the former’s decision to take the contract for PET-CT scanning services away from OUH and hand it to InHealth.

That triggered a huge outcry. The weight of criticism forced NHS England into a U-turn last week and the two PET-CT scanners are now to stay in OUH’s Churchill hospital rather than be moved to a new facility. However, InHealth is still being given the contract to provide the service.

Anneliese Dodds, the Labour MP for Oxford East, whose constituency includes the Churchill, condemned NHS England’s threat to sue OUH, calling it scandalous. She had received the letter from an OUH whistleblower.

She said: “I am appalled that NHS England sought to prevent clinicians from offering an informed opinion about privatising Oxford’s PET-CT scan service.”

Dodds said it was absolutely unacceptable “that experts, who work directly in the provision of care for cancer patients, feel constrained from speaking out because of NHSE’s actions”.

Senior figures at OUH claim the veiled threat was part of a pattern of “bullying and intimidation” that NHS England used towards it to try to cajole it into keeping quiet over the PET-CT deal.

The Guardian can also reveal that OUH’s chief executive, Bruno Holthof, was left shaken after the NHS England chairman at the time, Sir Malcolm Grant, rang him to warn the trust not to mount a legal challenge to the switch to a contract with InHealth, despite the Churchill’s international reputation for providing cancer care.

Senior figures at OUH were left stunned at the heavy handed tactics when Holthof told them recently about his call with Grant.

OUH had planned to mount a legal challenge to InHealth winning the contract, but decided against doing so after the conversation.

DAC Beachcroft wrote to Gowling WLG, the trust’s lawyers, on 14 August, referencing OUH’s view that “NHS England will be aware that [because it had decided to award InHealth the contract], it has put patient safety at risk, and severely compromised the provision of cancer care and research in the health system, in both the short and long term”.

DAC Beachcroft responded to that view, saying: “NHS England does not accept that the result of this procurement puts patient safety at risk or compromises the provision of cancer care and research in the health system. We are bound to put you on notice that any statement in those or similar terms would be defamatory if repeated to any third party.”

This is thought to be the first time NHS bosses have threatened a trust with the law of libel.

Disclosure of NHS England’s behaviour towards OUH comes as Oxfordshire county council’s health oversight and scrutiny committee prepares to meet on Thursday to investigate how and why InHealth came to be awarded the contract.

NHS England defended its tactics. “Taxpayers would rightly take a dim view of an NHS hospital diverting funding on to lawyers’ fees for legal action against another part of the NHS, and Oxford University hospitals were right not to attempt to do so,” said a spokesperson.

Adrian Harris, professor of medical oncology at the University of Oxford, warned that cancer patients having a PET-CT scan in future, in either Swindon or Milton Keynes, in mobile units InHealth was setting up there as part of its new contract, would have poorer quality scans than those offered at the Churchill hospital.

“Patients ... will have a two-tier system, one in hospital car parks with poor access machines – the Oxford patients [will get better scans] at the Churchill. The new scanners at Oxford are 10 times more sensitive than mobile ones,” Harris said in a letter to local MPs.