I can't really justify it in any way, it was a terrible mistake to make

Lewis Moonie Defence Minister

The mistake led to tax being wrongly deducted from the payments and surviving veterans who were affected are now being reimbursed.

The MoD said it had examined the files of more than 25,000 former soldiers and in 1,003 cases pensions were underpaid.

'Cover-up' claim

The mistake was acknowledged last year following a campaign by former Royal Artillery Major John Perry, who refused to accept everything was in order.

Major Perry told BBC Radio 4's Today programme he had first realised the error in 1990 but his concerns had repeatedly been rejected by the MoD.

Moonie says the MoD is putting things right

"I know myself there was a cover-up but there is no way I could prove it in a court of law," said the Army veteran.

Defence Minister Lewis Moonie is making a Commons statement on the debacle on Wednesday afternoon.

Earlier, Dr Moonie told Today the number of widows affected, currently 26, could rise and millions of pounds would need to be repaid.

"It happened through an oversight in the Pensions Agency, one which I deeply regret," he said.

Contacting widows

The minister added: "It happened a long time ago, I can't really justify it in any way, it was a terrible mistake to make and we have done our very best in the last couple of years to put it right."

The MoD was still trying to contact any other widows who might have been affected and so could not put a final figure on the amount of money that needed to be repaid, he said.

The taxpayer would not lose money through the repayments, said Dr Moonie, as it was cash the Inland Revenue should never have received.

Under the 1952 Income and Corporation Taxes Act pensions were made tax free if they were granted on account of medical unfitness "attributable" to naval, military or air force service.

Civil servants managing Army pensions failed to take this into account and continued to deduct tax from payments to injured veterans from most of the major conflicts since World War II.

Revenue reimbursement

The files of those affected have been passed onto the Inland Revenue to be reimbursed and some have already had the money paid back.

A spokeswoman said: "The Ministry of Defence accepts full responsibility for the error. We've put a huge amount of effort into rectifying our error.

"We apologise that this has happened. For the individuals we are very sorry."

According to the Daily Telegraph most of the cases involve sums of between �30,000 and �100,000.

It believes the total cost could be about �50m, a figure described by the MoD as "pure speculation".

Liberal Democrat defence spokesman Paul Keetch urged the government to stop "prevaricating" and launch a full-scale inquiry into the error.

"The country has no greater duty than to look after those who have fought for it on the battlefield," said Mr Keetch.

"The persistance of Major Perry has proved that at the very least the MoD has a case to answer."