The university says 98% of animals housed at the centre will be rodents

Executives at the Montpellier Group said the company's subsidiary, Walter Lilly and Co, would be withdrawing.

A police probe earlier this year found letters claiming to be from Montpellier bosses urging shareholders to sell or face action from activists.

Oxford University officials say they remain committed to the �18m project.

'No increase in tests'

Oxford University said the centre would replace existing sites and would not mean an increase in animal tests.

About 98% of its animals would be rodents, although the centre could also house ferrets, amphibians, fish and primates, they said.

Neither Montpellier nor the university has given the reasons for the firm's withdrawal.

But Home Secretary David Blunkett has promised tough action against any animal rights activists who resort to intimidation.

It is refreshing to see a company take a decision based on ethical considerations rather than profit margins Robert Cogswell, Speak

Mr Blunkett said he had spoken to Montpellier's managing director and promised police would have "whatever they request" to combat "internal terrorists".

"They are threatening, they are destroying, they are undermining the lives of people going about their business," he said.

The Metropolitan Police's National Extremism Tactical Co-Ordination Unit was called in to investigate a campaign against the company earlier this year, and unearthed the false letters scheme.

Company bosses have also had paint poured over their cars in apparent targeted attacks.

Last week 85-year-old animal rights campaigner Joan Court held a 48-hour hunger strike outside the site.

Security costs

Ms Court, a retired midwife from Cambridge, said she was delighted at the latest development.

She told BBC News Online: "It is a miracle, I am absolutely delighted - anything that will stop continuation of the project gives me immense happiness.

Speak, a group which has campaigned against the laboratory, said it did not condone or ever carry out illegal activities.

Spokesman Robert Cogswell said: "We are not anti-science or anti-progress but do not believe you can replicate the results of tests upon animals with humans.

"It is refreshing to see a company take a decision based on ethical considerations rather than profit margins," he added.

Joan Court staged a 48-hour hunger strike outside the site

Some members of the scientific community reacted with dismay to Monday's announcement.

Dr Simon Festing, of the Association of Medical Research Charities, said the withdrawal would "set alarm bells ringing" for all those involved in medical research.

"Unless we see urgent action from the government, the prize of the UK staying a world leader in developing new medicines could slip through its fingers," he said.

Consultant neurosurgeon at Oxford University Professor Tipu Aziz said: "Animal rights terrorism is the most immediate threat to the British population as I perceive it.

"Until animal rights extremists are treated as terrorists they will hold hostage the future of British public health."

The setback for the biomedical facility at Oxford comes six months after Cambridge University abandoned plans for a multi-million pound primate research centre.

It was decided the costs, including measures needed to protect the facility from animal rights militants, would make the laboratory uneconomic.