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Corruption investigators are to press for criminal charges over BAE Systems' arms deals, setting the stage for a showdown in Britain's most politically-charged corporate corruption case.

The Serious Fraud Office said on Thursday it was seeking consent to prosecute from Baroness Scotland, attorney-general, after the failure of efforts to persuade the British company to accept a conviction and fine running into hundreds of millions of pounds.

The decision throws a hugely controversial case back into the political arena and threatens BAE with big financial penalties and the prospect of being barred from bidding for lucrative international public works contracts.

The SFO's two line statement said it was preparing papers for the attorney-general relating to a prosecution of BAE for overseas corruption. The charges were linked to an investigation into the company's dealings in Africa and eastern Europe.

Lady Scotland -- the UK government's senior law officer -- will have to decide whether to press ahead with a prosecution in a case that has been hugely controversial since Tony Blair, former prime minister, intervened in 2006 after pressure from Saudi Arabia to stop a probe into the £43bn Al-Yamamah deal under which Riyadh bought aircraft and other defence equipment from Britain.

BAE said in a statement on Thursday that it continued to attempt to resolve the matters under investigation with the SFO but that it would be prepared to defend itself in court if an agreement could not be reached. The company has repeatedly denied allegations that it paid hundreds of millions of pounds of bribes to win business in Saudi Arabia, Tanzania, South Africa, Romania and other countries.

BAE shares fell more than 5 per cent to 329.9p on Thursday as investors worried about the implications of a possible trial on the company's business orders.

The SFO had wanted a deal in which the company would plead guilty to limited corruption charges in exchange for more lenient treatment, said insiders.

A similar agreement between prosecutors and construction group Mabey & Johnson, the first of its kind in Britain, resulted last week in the company paying out about £6.5m in fines, compensation, costs and reparations.

A guilty plea could have severe consequences for BAE reputationally and commercially, with the possibility that it could be blacklisted from publicly funded projects in the US, European Union and elsewhere.

The company is also under investigation by the US Department of Justice and other national authorities. But there were no immediate signs that the SFO was co-ordinating its decision on prosecution with similar announcements elsewhere.

The stakes are high, too, for the SFO, which is under pressure to improve its record on tackling corporate corruption and deliver results from the BAE probe after investigating the company for more than five years.

BAE has previously denied bribery and said it is co-operating with the authorities as part of a policy of "allowing the ongoing investigations to run their course".

The SFO's probe has also examined possible corruption cases against individual BAE managers and agents, although these would not be covered in either the proposed plea deal or a contested prosecution against the company.