The Foreign Office has been saddled with a £500,000 telephone bill after a satellite phone belonging to a British diplomat was stolen in Baghdad, according to UK press reports.

The phone may have been used to make calls from Yemen and Saudi Arabia, with some potentially relating to terrorist activity.

Reports suggest that UK intelligence agents are believed to be working through the dialled numbers in an attempt to trace the recipients.

It is thought that the phone was sent from the UK to a senior diplomat in Baghdad two years ago via a courier, but that it never reached its destination and was not reported as missing.

An investigation was initiated only when the Foreign Office became suspicious about calling behaviour.

Foreign Secretary Jack Straw was reported to be "furious" and has ordered an inquiry into how such a security blunder could have occurred in such a volatile region.

But those less keen to criticise government inefficiency are pointing out one clear upside: the phone's billing record could be a veritable Who's Who? of terrorists.