The Daily Telegraph reported on Thursday that senior British ministers held a series of meetings with the Iranian government before the collapse of MG Rover, hoping to clear the way for a deal that could have doubled Rover's worldwide production and perhaps saved the company.

The talks reportedly involved Iranian firm, Dastaan, which had been negotiating with MG Rover since early 2004 over plans to assemble some 150,000 cars each year in eastern Iran - more than the entire output of the MG Rover group in 2004.

The first trial shipment of 2,000 Rover 75 and 45s worth £20 million was due this April, May and June, with another £30 million delivery later in the summer, the paper said, adding that the shipments were meant to test the market and establish a trading relationship before Rover and Dastaan moved on to the assembly stage in 2006.

The Daily Telegraph said that Dastaan began to have cold feet as reports reached Teheran about growing difficulties at Longbridge. No money changed hands.

A senior official told The Daily Telegraph that Patricia Hewitt, the trade and industry secretary [government minister], held six meetings this year with Iran's ambassador in an attempt to shore up the deal. The paper said the secret talks suggest that the Labour government was more involved in the search for a rescue deal than it has so far revealed.

Noting that the DTI refused to comment, the paper added that Iran's ambassador, Mohammad Hossein Adeli, also discussed Rover in a series of meetings with Jack Straw, the foreign secretary - a foreign office spokesman reportedly denied Straw had played any role in negotiations for a Rover rescue package.

Russ Thomas, Rover's chief of business development, told the Telegraph he had been in talks with Dastaan for about 15 months - "The plan was to start with units fully-assembled in the UK, then move next year to partial assembly. Eventually, the idea was to reach full assembly of 150,000 cars a year."

"Had it been successful, it could have been very profitable. But we were never going to rely on it until we had the money in our hands. The only contract we actually signed was for the first 2,000 cars," he told the Daily Telegraph.

The newspaper said Dastaan is owned by an Iranian politician, Dr H Aghaee, who hoped to build the Rover plant in his home region of Sistan-Baluchistan, now a free-trade zone with special tax incentives for foreign firms.

Aghaee reportedly had backing from the Baluchi government but Dastaan's structure was never clear - Thomas told the Telegraph the firm seemed to be having trouble raising money.

One official believed Dastaan's aim was to obtain Rover's intellectual property, brand rights and engineering capability, rather than set up a production plant, the Daily Telegraph said.

Though Iran has a history of ties to the UK car industry - the country's streets are still filled with locally-made 1960s designed Hillman Hunters, known as the 'Paykan', the country has been looking towards France, Germany and Italy for recent deals.

Iran Khodro - the Paykan maker - is gearing up to build new Renault and Peugeot models and deals have recently been annpunced for local assembly of Volkswagen, Mercedes and Fiat cars.