A former British official has admitted for the first time that Britain was responsible for a James Bond-style spy plot involving a fake rock in Moscow that contained electronic equipment.
Russia accused British diplomats six years ago of using the bizarre scheme to send and receive electronic messages, a charge London had until now denied.
But Jonathan Powell, chief of staff to then-prime minister Tony Blair, told the BBC that Russia had used the incident to bring in a law to crack down on foreign non-governmental organisations.
"There's not much you can say. The spy rock was embarrassing," Powell said in a programme to be broadcast by the BBC on Thursday. They had us bang to rights.
"Clearly they had known about it for some time and had been saving it up for a political purpose."
Russian television had in January 2006 broadcast footage of what it said was a British agent picking up a fake rock in a Moscow street.
It showed a transmitter hidden inside the rock and said it had been used by British diplomats to pass messages.
Russia's security service, the FSB, then alleged that Britain was making covert payments to pro-democracy and human rights groups.
Russian prime minister Vladimir Putin, the country's president at the time, introduced a law shortly afterwards restricting all foreign funding to NGOs.
A spokesman for Britain's foreign ministry told AFP that the government did not have any inappropriate relationships with Russian NGOs.
"But we don't comment on intelligence matters or individual cases," he added.
Tony Brenton, Britain's ambassador in Moscow at the time, also told the BBC that all activities with NGOs had been "completely above board".
Russian authorities made no official response to Powell's comments.
But Nikolai Kovalyov, the former head of the FSB and now a parliamentary deputy, told the RIA Novosti news agency that the British admission was aimed at warming relations with Russia.
"This is one of the few cases when on an official, political level such an official admission is made," he said.
"The admission we heard is a serious signal from London that it is time to improve our relations," he said, predicting that it could be used by Britain to claim its greater openness.
Britain and Russia have had frosty relations for years, particularly over the poisoning with radioactive polonium in London of Kremlin critic Alexander Litvinenko later in 2006.
British Prime Minister David Cameron visited Moscow in September for the first time since the death of Litvinenko, a former agent in the Soviet Union's KGB security agency, in a bid to heal relations.
Although the two countries acknowledged a failure to solve differences over Litvinenko, they sealed trade deals worth more than $300 million (£194 million, 233 million euros).
Russian President Dmitry Medvedev even joked during the visit that Cameron would make a good KGB spy.
Britain suspects Andrei Lugovoi, a former FSB agent who now represents the nationalist Liberal Democratic Party of Russia in parliament of murdering Litvinenko, but Russia refuses to extradite him.