In May last year, Lai approached an acquaintance - a major in the island's missile command centre - offering him close to NT$1 million (HK$263,157) for confidential information about Taiwan's Patriot missiles and related missile drills, the Investigation Bureau officers said.

Alarmed by the alleged offer, the major reported the case to his superior, who then started monitoring the businessman, culminating in Monday's arrest, the officers said.

Investigators say Lai later told them that he was recruited by a Taiwan Affairs Office official with the Beijing city government, who threatened to make his life in Beijing bitter if he refused to serve as a secret agent for the mainland.

David Lo, spokesman for Taiwan's defence ministry, confirmed yesterday that a mainland-based Taiwanese businessman was arrested, noting that the case had been transferred to the High Court prosecutor's office for investigation.

But Lo stressed that no classified information had been leaked.

'Nor had any military officers been involved,' he said, adding that the military turned the case over to prosecutors since no military personnel were involved.

The incident comes just months after Taiwan arrested a major general in February for leaking classified information to the mainland.

The arrest of Lo Hsien-che - the highest-ranking officer caught spying for the mainland in six decades - dealt a serious blow to Ma's government, which had adopted a policy of engaging Beijing.

The latest scandal also provided the pro-independence camp with another excuse to attack the government's policy of increasing engagement with Beijing.

The espionage scandals have also prompted the defence ministry to step up efforts to tighten security within the military.

$1m

The amount, in US dollars, Major General Lo Hsien-che is said to have sold secrets to the mainland for, reports in Taiwan say