Colin Skellett, head of Wessex Water, has said he may sue police over allegations that he received a payment during the sale of the company to Malaysia-based YTL Power.

"I will most certainly take legal counsel about seeking damages once I am vindicated of this allegation. For the time being, the focus is on getting everything settled," he told the Business newspaper on Sunday.

His comments come amid reports that the City of London fraud squad plan to widen their investigation of the alleged bribe and will be flying to Malaysia this week.

On Thursday, Mr Skellett was arrested by City of London fraud squad officers on suspicion of receiving a bribe of nearly �1m.

He has now been released on police bail "for a few months" while the investigation continues.

"Had the City of London police checked with the financial advisers to the transaction before they arrested me, they would have realised I was not in a position to influence the sale process," he told the Business newspaper.

'Not a bribe'

Mr Skellett has said that he received a �1m fee from YTL for consultancy work.

"I've signed a consultancy agreement, I did it in July with them (YTL), which locks me in for five years, and that's what I'm getting the �1m for," he told the BBC.

"That's a completely transparent payment that's gone into my bank for a consultancy agreement. That's a legal agreement I've signed with them."

YTL Power bought Wessex Water in May this year for �1.24bn ($1.7bn).

It fought off competition from a bid which was led by the UK banks Royal Bank of Scotland (RBS) and Abbey National.

Somebody's looked at - big sum of money - YTL - Wessex sale - and put two and two together and made five.

Colin Skellett Wessex Water

Surprise decision

Mr Skellett, chairman and chief executive at Wessex, told the BBC that he had played no part in the deal.

"That decision was made by the US company Azurix, who were the owners then of Wessex Water, advised by the bank.

"We were not part of the decision-making process and indeed we thought that the deal would be done with RBS and we were amazed when it did go to YTL."

Azurix was a unit of the failed energy trader Enron, which went bankrupt last year.

In a statement, Wessex Water also said that neither Mr Skellett "nor other Wessex Water directors were involved in the discussions to sell to YTL".

Detective superintendent Ken Farrow, head of the City of London police fraud squad, has made it clear there is no suggestion of "any wider mismanagement of Wessex Water Ltd."

A second man - said to have "no direct connection" with Wessex Water - was also arrested on Thursday after coming voluntarily to a City of London police station in connection with Mr Skellett's arrest. The Sunday Times named him as Martin Bushnell. Mr Bushnell is thought to have acted as a consultant between YTL and Mr Skellett.

The police said the man had also been released on bail to return to a police station at a later date.

YTL Power has said it had "no knowledge of any illegal payment and has offered the police its full co-operation in relation to the investigation".