Lieutenant Colonel Tim Spicer claimed there had been a "sea change" in attitudes since the 1998 affair. Ministers were accused of conniving with Sandline International, his former company, to export weapons illegally to Sierra Leone.

But Lt Col Spicer told the foreign affairs select committee that "people in governments - certainly this government - have come to recognise there is a role" for private military companies.

He said this could extend beyond the role, suggested in a government green paper this year, of supporting United Nations peacekeeping operations.

Lt Col Spicer said private military companies could be used in situations such as Kosovo, where there was "some hesitation about the right course of action".

"In certain circumstances, where the government of the day didn't wish to deploy British troops or didn't have the capacity to do so", there was a "case for some form of intervention force purely to stabilise the situation and prevent loss of life", he said.

But he stressed that the issues involved in contracting out combat roles were complex. He claimed private companies were best suited to a"small scale conflict, primarily within the borders of a sovereign state", such as Rwanda or Sierra Leone.

Some of of the committee's Labour members are concerned about the government extending outsourcing in areas such as training, let alone opening up combat roles to mercenaries.

Andrew Mackinlay questioned whether it would be possible to regulate private companies effectively.

But Lt Col Spicer, who has left Sandline to form a new company, Strategic Consulting International, said there was an unjustified "assumption that people who run private military companies don't subscribe to good morals or respect human rights".