The UK sold a "useless" air traffic control system to Tanzania in 2001 in a "scandalous" and "squalid" deal, the House of Commons has been told.
Tanzania's main airport benefited from the deal
Ex-International Development Secretary Clare Short joined the Tories in accusing Tony Blair of pushing through the £28m sale by BAE Systems.
Ministers said the deal had not damaged Tanzania's economy or its development.
The Serious Fraud Office (SFO) is currently investigating claims that BAE bribed Tanzanian officials.
'Reputation in tatters'
Ms Short, who is now an independent MP, has consistently argued Tanzania could have paid much less for the same equipment.
"I believe that all the parties involved in this deal should be deeply ashamed," she said in a Commons debate on Tuesday night.
She said the deal was "useless and hostile to the interests of Tanzania" and had been opposed by senior cabinet members including Chancellor Gordon Brown.
She said Barclays Bank had "colluded" with the government by loaning Tanzania the money, but lying to the World Bank about the type and size of the loan.
Lynne Featherstone, of the Liberal Democrats, said Britain had to be "squeaky clean" if it wanted to "retain any influence, reputation or credibility in world affairs".
"Somewhere between the government, BAE and Barclays - and perhaps all three - our reputation worldwide is in tatters," she said.
Shadow international development secretary Andrew Mitchell said BAE had used "ageing technology" and said the system was "not adequate and too expensive".
Mr Mitchell said the deal had "all the warning signs of impropriety - a vastly inflated price, an unsuitable product and unorthodox financing".
"Despite the opposition of all the most informed, respected and qualified observers approval for the licences was forced through a divided cabinet by the prime minister."
He called on his opposite number, Hilary Benn, to explain the government's "profoundly unattractive" conduct.
Mr Benn said the government had considered whether "the export would seriously undermine the economy or seriously harm the sustainable development of the recipient country".
"The government at the time judged it would not and, looking back from this vantage point, it would be hard to argue that it did."
He said he could not comment on bribery allegations because they were under investigation.
Officials from the SFO have already visited Tanzania to look into claims BAE gave bribes to ensure the deal would go through.
BAE says it is co-operating fully with the inquiry, but has strongly denied operating a secret slush fund to sweeten deals.
The SFO recently dropped a long-running BAE corruption probe into a huge arms deal with Saudi Arabia.
Reports said the Saudis had threatened to pull out of a new BAE deal unless the probe was brought to an end.
Opposition politicians accused the government of putting cash before principle.