In a report concluding a three-month Legislative Council investigation of the controversy, the committee concluded Mr Leung, in his capacity as the Building Authority, had failed to uphold the guidelines on the exercise of his discretionary powers in vetting the project - costing the government at least $125 million in revenue.

Henderson Land paid an additional premium of just $6 million for the 10,700 square metres, enabling it to make an estimated $3.23 billion.

The committee also said Mr Leung 'adopted a very restrictive view on public interest' and failed to adequately take into account relevant public interest and government policies by viewing his role as the Building Authority as distinct from that of a civil servant. He did not attach due weight to the views of other government departments and failed to seek clarification of legal advice given by the Department of Justice.

The committee disapproved of Mr Leung's defence at its hearings, where he insisted on the need to switch from a civil servant's hat to the Building Authority's hat, as well as his own interpretation of the public interest. The report also expressed grave concern that, in deciding the site classification before the land sale, the Buildings Department did not seek clarification from the Planning Department about the site's planned use.

Committee chairman Philip Wong Yu-hong said they had agreed not to use the words 'censure' or 'condemn' in the report. He denied that the committee had watered down the report.

'We do not see that there is any communication of benefits between Mr Leung and the developers,' Mr Wong said. 'The committee is not responsible for recommending punishment.'

The report recommended the secretary for housing, planning and lands improve communication and co-ordination among its various departments, and called for a review of the criteria for deciding the maximum gross floor area of a site to clear all ambiguities about its development potential.

It also urged the government to ensure that the Building Authority considered the public interest and views from different government departments when exercising discretionary power.

Legislator Albert Ho Chun-yan, from the Democratic Party, said the government should consider taking disciplinary action against Mr Leung.

'The public has lost billions of dollars because of his decision. The government should also seek to check and balance the discretionary power of the Building Authority.'

But Secretary for the Civil Service Denise Yue Chung-yee said it was too early to decide on any disciplinary action to be taken against the former housing chief, and promised to follow up the case after an independent investigation committee released its report next month.

In response to the report, Mr Leung issued a written statement, saying: 'Although my views on the incident are fundamentally different from the committee, I feel that it is not the proper time to make further comments for fear of affecting the work of the independent investigation committee.'

A Henderson Land spokeswoman said the company had yet to study the report and declined to comment.