Gordon Brown cost the taxpayer hundreds of millions of pounds by selling shares in a Ministry of Defence research business at a knock-down price, it was claimed in the Commons yesterday.
Liberal Democrats attacked the Prime Minister over the sale of QinetiQ, which has a major research facility in Malvern, Worcestershire.
American private equity firm The Carlyle Group bought 37.5 per cent of QinetiQ in 2003 - and sold its stake for a £300 million profit in 2006.
And QinetiQ's chairman, Sir John Chisholm, received a return of £22 million from his original £129,000 investment.
The Government's handling of the sale is expected to be condemned in a highly-critical report by the National Audit Office, the official public spending watchdog, tomorrow.
The report will focus on the Ministry of Defence's role in the sale but Liberal Democrat acting leader Vincent Cable said Mr Brown, who was Chancellor at the time, must also be held responsible for the failure to get good value for money for the taxpayer.
Dr Cable said the report would be a third disaster for the Treasury, following the Northern Rock affair and the loss of two computer discs containing confidential information for 25 million people.
He told the Prime Minister: "Was the Prime Minister not financially very naive when he agreed to the undervaluation of public assets, enabling an American private equity company to make a windfall profit of £300 million, and the chief civil servant involved to make a personal fortune of £22 million?"
Mr Brown retorted: "We raised £800 million from the sale. QinetiQ is serving this country in its new ownership and is very important to Ministry of Defence future procurement plans."
But Mr Brown's role in the sale was also condemned by Labour peer Lord Gilbert of Dudley, who as John Gilbert was a Dudley MP for 27 years.
Lord Gilbert, a former Defence Minister, told The Guardian: "At the time I told the Defence Secretary [Lord Robertson] this would be a bloody scandal but the Treasury under Gordon Brown insisted on selling a stake in the agency to cut the defence budget.
"What the Treasury did not understand was that both US research workers and British research workers funded from the public purse would resent the fruits of their work going to enrich individuals in a private company.
"This was damaging to the special relationship between Britain and the US and also raised questions about intelligence sharing because of US defence secrets being passed to a private company."
He added: "At the time I managed to limit the scale of the sale, so that the Ministry of Defence still owns part of the company. But I was unable to stop it at the time. I am so furious about what happened that I try not to think about it too much."
The National Audit Office report will highlight how Sir John Chisholm and Graham Love, QinetiQ's chief executive, turned investments of £129,000 and £108,000 into assets worth £22 million and £18 million respectively when the firm was floated.
It was reported yesterday that the Ministry of Defence put pressure on National Audit Office officials to water down the report.
However, it is expected to attack the generosity of the incentives given to top civil servants, the low price paid for the assets and the circumstances that led the Treasury to push for the sale.