'I plotted to assassinate Balkan warlord,' M16 agent tells Diana inquest

The officer - identified only as A - thought that if the extreme nationalist seized power in the former Yugoslavia during the early 1990s he would launch a campaign of genocide as bad as Hitler's.

He proposed a hit on the warlord - who was not named in court but is thought to be the notorious leader Arkan - to the head of the Secret Intelligence Service in the Balkans at the time and was told to submit the plan in writing.

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It is thought to be the first time an active MI6 agent has taken the stand in a court hearing.

To protect his identity, the court was cleared of everyone except the jury, lawyers and clerks, with his testimony relayed by audiolink to an annexe at the Royal Courts of Justice in London.

The agent told the inquest: "I was worried about the possibility of this man taking power in Serbia and I thought we ought to think about having a contingency plan to assassinate this guy.

"My vague options were to use our special agents or our special forces."

Serbian dissidents opposed to the warlord were also a possibility, he said.

The agent said he felt MI6 rules which forbade assassinations needed to be reviewed to deal with the new threat.

He said when he suggested the proposal to the commanding officer, he appeared to be a mixture of "puzzled", "non-committal" and "curious".

But when A submitted the formal memo outlining the plot, it was quickly rejected.

The agent mentioned his concerns about Arkan, whose brutal paramilitary troops, the Tigers, slaughtered thousands of non-Serbs in the Croatian and Bosnian wars.

He was gunned down by masked assassins in a Belgrade hotel foyer in 2000.

A former MI6 agent, Richard Tomlinson, has told the inquest that the plot was to kill then Serbian President Slobodan Milosevic.

But A said this was "baloney" as at the time Milosevic was key to British hopes of creating stability in the Balkans.

He also denied Mr Tomlinson's claims that one of the proposed ways to kill him was "in a staged car crash in a tunnel".

Harrods boss Mohamed Al Fayed is convinced that Princess Diana and his son Dodi - who died in a car crash in a Paris tunnel in 1997 - were killed by MI6 on the orders of Prince Philip because she was pregnant with Dodi's child.

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A real life Miss Moneypenny yesterday revealed how MI6 kept secret files about food hampers bought from Harrods.

The Secret Intelligence Service office manager - identified as Miss X - told the hearing she had been given complete access to the agency's records to help police investigating Diana's death.

But when she hunted for details about the Knightsbridge store owned by Mr Al Fayed, the only references she found were to luxury food hampers bought as gifts by secret agents.

Miss X said one record shortly after the Paris crash referred to the Mercedes driver, Henri Paul, being a contact of the French equivalent of MI5.

But no files were kept on Diana or Dodi and there were "no plans" involving them.

•Barrister fees alone for the inquest are set to top £5million, it is claimed. Lawyers such as Ian Burnett QC, counsel to the coroner, are expected to take home more than £335,000, based on an hourly rate of £285, according to The Lawyer magazine.