A university has dropped a libel action against a Conservative MP who criticised it for taking money from Gaddafi's Libya.

In March, Robert Halfon, MP for Harlow in Essex, published a blog post about Liverpool John Moores University (JMU) and contracts it had signed with Libyan higher education institutions.

Mr Halfon, the grandson of a Libyan Jew who escaped the country in the 1960s following anti-Jewish pogroms, has been at the forefront of parliamentary calls for an inquiry into the funding of British universities by authoritarian Middle Eastern regimes.

The Harlow MP has now turned his attention to Dundee and Strathclyde universities in Scotland, which have admitted to taking Libyan money.

Following freedom of information requests from Mr Halfon, Strathclyde admitted to taking over £1 million in student fees from the Libyan People's Bureau (its embassy) and Dundee revealed it had taken over £700,000 from the same source. Both universities disclosed that staff had made a number of trips to Libya in recent years.

‘People must have the right to express views’

The withdrawal of the JMU libel action is likely to deter other universities from attempting to hamper Mr Halfon's investigations.

After he was threatened with libel action by the university's lawyers, Mr Halfon agreed to remove the post on his blog but they demanded that he also offer an unqualified withdrawal and promise not to repeat the claims. They also called for a donation to the university and for Mr Halfon to pay its legal costs for the case.

Mr Halfon refused, raising the possibility of an expensive and drawn-out libel suit.

His lawyer, David Allen Green of Preiskel & Co, described the action of the university as "illiberal, confused and misconceived".

The university did not deny the links, but argued everything was done transparently and with the backing of the Foreign and Commonwealth Office. Although it boasted last year of a £1.2 million contract with Alfateh Medical University in Tripoli, it now says the scheme failed to materialise.

Mr Halfon welcomed the decision by JMU to drop the case. "I am a firm believer in freedom of speech and people must have the right to express views even if they are unpalatable to some," he said.

He called on universities to be careful as to which regimes they took money from, and added: "I hope that universities who have had dealings with Libya and similar autocracies in the Middle East will think again before signing contracts or taking money."

John Kampfner, chief executive of Index on Censorship, said the libel threat against Mr Halfon showed the urgent need for legal reform. "That an MP cannot raise issues of immense public interest or safety without feeling the chill from our libel laws is indicative of how dreadful they are," he said. "The government has committed to introducing reforms to protect freedom of expression, but it must ensure the potential for once-in-a- generation reform is not wasted."