A war of words erupted over British Prime Minister Mr Tony Blair's euro policy last night as the axe hung over up to 25,000 motor industry jobs following BMW's disposal of the Rover car company.

Downing Street flatly rejected a suggestion by the chairman of BMW, Prof Joachim Milberg, that uncertainty over Britain joining the euro had been a factor in the decision. Speaking in Munich, Prof Milberg said that the strength of sterling and uncertainty over the euro had contributed to its decision.

As the prime minister's chief of staff, Mr Jonathan Powell, relayed Mr Blair's anger to BMW by telephone, a Downing Street spokesman insisted that BMW had been fully aware of the British government's economic criteria for joining the euro. That had been spelt out by Chancellor of the Exchequer Mr Gordon Brown in a speech in October 1997 before BMW agreed the business strategy for Rover, which indicated there would be no question of break-up of the company before 2002 at the earliest.

However Prof Milberg's remarks were seized on by Tory former deputy prime minister Mr Michael Heseltine, a firm supporter of the euro.

"There is no doubt that the problems of Britain outside the euro zone and the uncompetitiveness of the present pound are going to have a very serious effect on Britain's ability to attract investment and on existing jobs in this country," he told BBC radio.

The Liberal Democrat leader Mr Charles Kennedy said Prof Milberg's words were a "devastating indictment" of the government's single currency policy.

The break-up was completed yesterday with the sale of Land Rover to the US car giant, Ford, for £1.85 billion sterling (€3 billion). The Trade Secretary, Mr Stephen Byers confirmed his fear of high-level job losses following further talks with the new Longbridge owners, Alchemy, the London-based venture capital company.

Alchemy's managing partner, Mr Jon Moulton, signalled that Longbridge workers could face agonising weeks before their futures become clear. But he signalled substantial cuts in the 9,000-plus workforce as he confirmed that the new MG Car Company would build fewer than 100,000 cars per year, a fraction of the previous output.

Calling for the creation of a regional task force, the Manufacturing and Science Union said it feared 5,000 jobs would go at Longbridge alone, and that a further 25,000 jobs could be lost to the West Midlands in the supplier and service industries.