The BBC's Rob Watson reports looks at the significance of the discovery

"This is very serious because Iraq has always insisted it never weaponised VX... These findings show they did put it in weapons' warheads," said Mr Butler after a UN Security Council briefing.

Reports that UN weapons inspectors had discovered traces of the deadly VX nerve gas on Iraqi missile parts were leaked to the media on Tuesday.

UN weapons chief Richard Butler confirms reports but regrets they were leaked

Mr Butler said the missile parts would undergo further tests in France and Switzerland, but the results obtained so far were unambiguous in showing traces of VX. He said Iraq would now have to explain how much it had made and what had become of it.

Looming crisis?

As Iraq continues to deny the reports, correspondents say a new crisis between Iraq and the United Nations over weapons inspections looks increasingly likely.

• Iraq has always denied that it ever deployed the deadly gas on missiles.

• UN inspectors must verify whether Iraq has destroyed all long-range missiles and nuclear, chemical and biological weapons before the council will lift economic sanctions imposed in 1990.

• The United States and Britain have both said that the new discovery shows that Iraq is not to be trusted, and justifies their determination to keep sanctions in place.

• But France and Russia are in favour of easing the sanctions.

• In October, UN weapons inspectors must make a recommendation on whether to continue current inspection programme or switch to long-term monitoring.

Iraq retaliates

Iraq has issued a warning that it will adopt a new strategy to get UN sanctions against it lifted.

Iraqi UN ambassador Nizar Hamdoon challenges the allegations

A statement by the Iraqi Revolutionary Command Council said Baghdad would adopt "an alternative strategy" and warned of "grave consequences" if sanctions were not lifted.

An official in Baghdad said Iraq had never produced VX weapons and suggested test results from an American laboratory showing traces of the gas on Iraqi missile fragments had been faked.

Tariq Aziz: '"X not used in weapons"

An Iraqi statement said that given the tests were carried out in an American laboratory and the results leaked to an Iraqi opposition group, their credibility has to be questioned.

Deputy Prime Minister Tariq Aziz said Iraqi scientists had experimented with VX gas but were unable to stabilise it for use in weapons.

Meanwhile, the UN Secretary-General Kofi Annan said he hoped the news would not hinder the improved working relationship between Baghdad and the United Nations he fostered in his February trip to the Iraqi capital to resolve a crisis over the arms inspections.