BAE sold Tornado and Hawk jets to Saudi Arabia under the deal
The Tories have backed government plans for new attorney general powers to halt inquiries in the national interest.
The move comes after the High Court said the Serious Fraud Office acted unlawfully by dropping its corruption inquiry into the al-Yamamah arms deal.
The SFO is now considering whether to or not to re-open its investigation.
Shadow foreign secretary William Hague said the question remained whether the al-Yamamah investigation was called off for reasons that were exceptional.
But he strongly backed the principle that governments should be able to set aside an investigation if there is a serious threat to national security.
1985: Britain signs deal to sell 72 Tornados and Hawk jets to Saudis
May 2004: Guardian reports MOD police are investigating £60m payments made during deal
Nov 2004: BAE confirms it is being investigated by SFO, but denies wrongdoing
1 Dec 2006: French firm Dassault in talks to sell the Rafale, a rival to Eurofighter, to Saudi Arabia.
14 Dec 2006: MPs told SFO probe has been stopped
17 Jan 2007: OECD anti-bribery group has "serious concerns" about the decision
June 2007: BAE says it is being investigated by US justice department
April 2008: High Court rules the SFO acted unlawfully
Increasing the attorney general's power to do so is an element of the government's new Constitutional Renewal Bill.
Health Secretary Alan Johnson told the BBC's Any Questions programme that continuing the SFO investigation would have jeopardised the lives of British citizens and the Army.
Asked whether the investigation should be reopened, Defence Secretary Des Browne said it was a matter for the court.
He said while he accepted a letter from the then Prime Minister Tony Blair to the Attorney General would have affected the SFO's decision, he did not accept the government alone had stopped the original investigation.
The Liberal Democrats maintain that the attorney general should not get new powers, and want the SFO's investigation re-opened.
The High Court case over the £43bn BAE arms deal with Saudi Arabia was brought by The Corner House and the Campaign Against Arms Trade
They said the SFO decision was influenced by government concerns about trade and diplomatic ties with Saudi Arabia.
Lord Justice Moses said that the SFO and the government had given into "blatant threats" that Saudi co-operation in the fight against terror would end unless the probe into corruption was halted.
The al-Yamamah deal with Saudi Arabia was first signed in 1985 but ran into the 1990s and involved BAE selling Tornado and Hawk jets, other weapons and long-running maintenance and training contracts.
BAE was accused of illegal payments to Saudi officials, but the defence company maintains it acted lawfully.
In December 2006, the then-Attorney General, Lord Goldsmith, announced that the SFO was suspending its inquiry into the deal, saying it would have caused "serious damage" to UK-Saudi relations and, in turn, threatened national security.
Saudi Arabia is also reported to have threatened to cancel last year's £20bn deal to buy 72 Eurofighter Typhoon jets from BAE Systems.