David Leigh – Disclosures in the Guardian that a British arms company paid 16 million pounds to Indonesia's president's daughter to obtain a government-backed sale are being investigated, the leader of the Commons, Peter Hain, told MPs yesterday.

The reports about payments made by the tank manufacturer Alvis were "very serious and disturbing", he said when questioned by the Liberal Democrat Paul Tyler. "This is a matter that is being investigated by the secretary of state."

Patricia Hewitt, the trade secretary, is ultimately responsible for the export credits guarantee department (ECGD), which decided to back with taxpayers' money the sale of 100 Scorpion tanks to Indonesia.

When the impoverished country hit a financial crisis shortly afterwards, and President Suharto was deposed, the British government was left to pick up a 93 million pound bill.

Ms Hewitt's spokesman said yesterday: "She is aware of the case." Such allegations of improper conduct involving the ECGD were now normally referred for investigation to the national criminal intelligence service. The ECGD does not have an investigative arm of its own.

The ECGD guarantees were made towards the end of the last Conservative government, and the incoming Blair government was left to deal with the consequences.

Demanding government action on "corruption in the sale of arms", Mr Tyler said there had been a "very extensive and very important" report in the Guardian.

He said the newspaper had indicated that the "sale of arms to Indonesia was the subject of a major corruption episode" in the mid-1990s. The report followed a high court ruling which allowed the Guardian access to court files from an earlier unreported case. Mr Tyler said: "The significance for the government's policy is this – the sale was backed by a British government export credit guarantee department, which was left to pick up a 93 million pound bill." He said the allegations had "very important implications" for the government's policy on arms sales.

Mr Hain responded: "It was this Labour government that brought in a new code, and got the EU to adopt a similar one that prevents the export of arms for the use of either internal oppression or external aggression. Any exports have to be judged very critically against that important criteria. We've led the world in this." He added that the government was seeking to enlarge the code beyond the EU to "make it a global one".