Allegations that former Paymaster General Geoffrey Robinson made fraudulent claims for grants while chairman of the failed engineering firm Transtec are to be the subject of a government investigation.

The Department of Trade and Industry inquiry comes after a former executive of the firm said Mr Robinson told him to put false information in applications for DTI grants.

A DTI spokesman said the allegations were "serious", and that it would "fully investigate".

Trade Secretary Stephen Byers had already set off an independent investigation into some of Mr Robinson's other business dealings.

On Monday Transtec's former chief accountant, Max Ayriss, told the BBC that a five figure sum had been involved in several different applications for DTI grants by Mr Robinson's businesses.

He said if a claim came below the amount that Transtec could get, "Geoffrey indicated how to maximise it".

Mr Ayriss added that the Labour MP also obtained a £30,000 grant from the DTI to buy a factory building which he was not planning to occupy but simply wanted to let.

Mr Ayriss said he "wasn't very happy" about the situation and added that "Geoffrey said that this was the way the government helped out small companies".

As his unease grew Mr Ayriss decided to leave, but not without backing for his story, he said. "I copied the papers for these grants in the last couple of week of being there just in case someone came knocking at the door and I had to explain myself."

Department of Trade officials will be interviewing Mr Ayriss later this week.

'Pack of lies'

Mr Robinson, whose business affairs have long been the subject of controversy, founded Transtec in the early 1980s but resigned as chairman when he joined the government in 1997.

The company collapsed just before Christmas, going into receivership amid claims of accounting irregularities.

Former sales manager Peter Dickinson is reported to have said that DTI inspectors were told "a pack of lies".

The DTI had already launched an inquiry into other aspects of Mr Robinson's running of the Midlands car parts firm.

The former Paymaster General and generous donor to Labour Party funds is facing possible questioning over allegations that a £10.9m claim against Transtec from the Ford Motor Company had been omitted from the 1997 accounts of the firm.

These accounting irregularities led to the firm's shares being suspended and the receivers being called in.

The DTI is now expected to expand this inquiry to incorporate the latest allegations.

Mr Robinson says he has no knowledge of the poor accounting practices.

In December last year the DTI decided there were no ground to take any action in relation to other business interests of the millionaire - once worth £30m - that had been the subject of earlier investigation.