Gurkhas, who are recruited from Nepal, have always received smaller compensation and pensions than British-born soldiers, leading to accusations of inequality.

To cheers at Commons question time, Mr Blair hailed the Gurkhas as a "unique fighting force that has a real place in the hearts and affections of all people in this country".

Mr Blair said the first stage in the review of arrangements for death-in-service and pensions paid to Gurkhas had been completed.

"As a result gratuities payable in respect of death attributable to service of Gurkhas will now be brought into line with those of their British counterparts."

The payments will be backdated to 26 May, benefiting the widow of a Gurkha killed in Kosovo.

Inequality

Staff Sergeant Balaram Rai, 35, died on Monday with his British commander Lieutenant Gareth Evans, while clearing unexploded Nato bombs from a school west of Pristina.

Pay and pensions linked to living costs

But there was controversy after it emerged that the lump sum and pension which his family were entitled to was substantially less than the widow of an equivalent British soldier would have received.

Mr Rai's widow was paid a one-off sum of just �19,092, compared with �54,000 for a non-Gurkha soldier of the same rank and length of service.

And her pension of �939.24 a year for the first five years, followed by �771.48 a year after that, would have been just 7.5% of the �15,192 pension that the widow of a similar British soldier would receive.

But now Mrs Ashanta Rai will now receive an additional �36,000.

Disparity over living costs

The increase is part of an examination of Gurkha gratuities and pensions, which are linked with the pay and pension of Gurkhas in the Indian Army.

Their pensions have been linked with the very low cost of living in Nepal, lowering the amount to hundreds of pounds a year rather than the thousands received by long-serving British born soldiers.

The examination into the level of pensions will be completed by the end of the year.

Much pressure for reform has come from a group which represents former British Gurkhas, the Gurkha Army Ex-servicemen's Organisation.

Feared fighting force

For more than 200 years, Nepalese soldiers have been recruited by Britain to join the Gurkhas.

They have served in two world wars, won numerous gallantry awards and were recently at the forefront of the Nato-led peace keeping force in Kosovo.

There are currently around 3,000 Gurkhas in the British army, and around 35,000 former British Gurkhas who live in Nepal.