Heseltine raised Libyan security concerns during Westland row
Michael Heseltine tried to stop a US-led bid for the Westland defence firm in 1985 by warning Margaret Thatcher over possible Libyan involvement in the takeover, newly published files show.
The then defence secretary told the prime minister any such links would be "politically unacceptable" given Libya's suspected "role in terrorism".
Government papers show he ordered a security assessment of the consortium.
The Tory grandee, who wanted a European deal, later quit over the issue.
The battle for control of British helicopter manufacturer Westland, which became known as the Westland affair, was one of the most divisive political rows of Mrs Thatcher's second term in office.
It prompted the resignation of both Mr Heseltine and the then trade and industry secretary Leon Brittan within the space of a few weeks.
Previously classified documents released by the National Archives show that Mr Heseltine, who is now a Conservative peer, raised fears of a possible connection between Libya and the consortium led by US firm Sikorsky trying to take control of Westland, whose rescue approach for the struggling firm he opposed.
He wrote to Mrs Thatcher on 23 December 1985 disclosing that he had requested the Joint Intelligence Committee compile an assessment of Italian firm Fiat, one of Sirkorsky's bid partners, amid reports that one of the company's senior executives was Libyan and there were two other Libyans on the company's board.
'Depth of convictions'
The Westland affair came at a time of strained relations between the UK and the Gaddafi regime in Libya following the shooting the previous year of WPC Yvonne Fletcher by a gunman from inside the Libyan People's Bureau in London.
In his letter to the prime minister, Mr Heseltine wrote: "Certainly I do not regard the present assessment of Libya's role in terrorism on the world stage, including on the streets of London, to be compatible with political acceptability in our industrial community."
One of the most pro-European voices in the Conservative Party, he went on to urge Mrs Thatcher to declare publicly that the government favoured "a British/European solution" to safeguard the company's future.
In a handwritten note accompanying the letter, he added: "I know that the last sentence of my note to you of today's date will not be an easy one for you. I know also that you will understand the depth of my convictions in this matter."
Mr Heseltine walked out of the cabinet just over two weeks later, on 9 January 1986, claiming that his views on the future of Westland were being ignored and trust had broken down between himself and Mrs Thatcher.
More than four years later it was Mr Heseltine's decision to stand against Mrs Thatcher for the leadership of the Conservative Party which prompted her resignation as prime minister.
Although Westland's link-up with Sikorsky was approved, the firm ultimately returned to British control when it was acquired by GKN - although the Somerset-based business has since been bought by Italian company Finmeccanica.
Other declassified documents from 1984 and 1985 which have now been published show the government discussed re-acquiring chemical weapons, voluntarily relinquished in the 1950s, in response to the perceived threat from the Soviet Union.
Notes of a meeting between senior ministers and defence chiefs on 8 August 1984 show that Mr Heseltine warned that the lack of a retaliatory capability to a chemical attack was a "major gap" in Nato's armoury.
The documents reveal that Mrs Thatcher suggested sounding out the Americans as one of a number of measures designed to consider the "enormous imbalance in Soviet and Western capabilities in chemical weapons and the threat which this posed".
A minute of the meeting suggested that the prime minister believed that "it might be argued that it was negligent of the government not to acquire chemical weapons capability but this was not a decision which could be addressed at this stage".
Classified documents deemed suitable for publication are currently released only after 30 years have elapsed. But two years' worth of records are being made available each year as part of a transition to a new 20-year publication rule by 2022.