Tony Blair has been accused of backing down on a pledge that his government would be "whiter than white", by ending a fraud probe into a Saudi arms deal.
Lib Dem leader Sir Menzies criticised the decision
Lib Dem leader Sir Menzies Campbell asked if others would be dropped in the same way as "this squalid affair".
But Mr Blair said the Lib Dems could not have it "both ways" - continuing with the inquiry without dealing a serious blow to UK interests.
He called their stance as "an object lesson in the absence of leadership".
The Serious Fraud Office had been investigating a 1980s deal between Saudi Arabia and BAE Systems, specifically claims BAE had set up a "slush fund" to sweeten the deal - something the firm strongly denied.
But it was dropped in December, after Attorney General Lord Goldsmith and the prime minister said it was jeopardising national security - by threatening relations with Saudi Arabia, a key ally in the fight against international terrorism.
It followed reports that the Saudis were threatening to pull out of another, multi-billion pound deal with BAE, to buy 72 Eurofighters.
That would have threatened British jobs, but would not have been grounds to end the probe under the Organisation for Economic Co-operation and Development's anti-corruption treaty - signed by Britain in 2002.
The Lib Dems say the government was effectively blackmailed by the Saudis into dropping the deal.
At prime minister's questions on Wednesday, Sir Menzies asked if similar investigations, for example concerning an air traffic control system sold to Tanzania, would also be dropped.
"How can the government handling of this squalid affair be in any way squared with the prime minister's promise that his government would be 'whiter than white'?," he said.
But Mr Blair said he had to take responsibility for acting in the best interests of the country and stood by his advice to the SFO that the case should be dropped.
"I believe that was right then, I believe it is right now," he said.
He accused Sir Menzies of wanting it both ways - continuing with the deal without having to deal with the consequences for the UK.