Britain's national security adviser is being brought in to review security arrangements at a Chinese telecoms firm Huawei.
The parliamentary Intelligence and Security Committee (ISC) raised concerns last month that telecoms giant Huawei's equipment could be used by Beijing to spy on the UK and called for an urgent probe.
Sir Kim Darroch has been tasked with investigating operations at the company's cyber security evaluation centre – known as the Cell – In Banbury, Oxfordshire, in order to try to allay the security fears and will report directly to Prime Minister David Cameron later this year.
A Cabinet Office spokesman said: "The Government has carefully considered the ISC's report on foreign investment in the critical national infrastructure and its particular focus on managing new threats to the UK's telecommunications systems and networks.
"We take threats to our critical national infrastructure very seriously and need to be responsive to changes in a fast-moving and complex, globalised telecommunications marketplace. We have robust procedures in place to ensure confidence in the security of UK telecommunications networks.
"However, we are not complacent and as such we have agreed to the main recommendation of the report to conduct a review of Huawei's Cyber Security Evaluation Centre (the 'Banbury Cell') to give assurance that we have the right measures and processes in place to protect UK telecommunications."
Huawei, which was founded by a former officer in the People's Liberation Army, first became a major player in the UK when it signed a deal to supply transmission equipment to BT in 2005.
The ISC's report suggested that national security was potentially being put at risk over Government fears of jeopardising trade links with powerful countries like China.
MPs warned of an unacceptable ''stalemate'' within Whitehall between security considerations and economic competitiveness and called for a key Huawei facility in the UK to be put under direct control of the GCHQ signals intelligence agency.
Chancellor George Osborne responded by issuing a statement insisting his priority remained remained boosting trade with China and pointedly welcomed the opening of a new office by Huawei in Reading.
In a formal response to the report published today, the Government reiterated its commitment to boosting trade links with China, adding it was "important that this balanced approach is taken".
It backed the ISC's criticism of the way Government dealt with the deal when it was being drawn up, conceding the processes considering national security issues at the time "were insufficiently robust", particularly the failure by officials to inform ministers about the deal for a year.
The Government added: "The Government does not agree with the Committee's statement that there have been no improvements since then or that national security issues are overlooked. Indeed the National Security Council (NSC), which was not in existence at the time of the BT/Huawei contract, can and does consider similar issues today in order to ensure that Her Majesty's Government's approach balances economic prosperity and commercial competitiveness with national security."
A spokeswoman for Huawei said: "Huawei welcomes the statement from the UK Government in response to the Intelligence and Security Committee report published in June 2013.
"Huawei notes that the UK Government response to the report which states, 'Our work with Huawei and their UK customers gives us confidence that the networks in the UK that use Huawei equipment are operated to a high standard of security and integrity'. Huawei supports the decision that the national security adviser should review the Cyber Security Evaluation Centre.
"Huawei shares the same goal as the UK Government and the ISC in raising the standards of cyber security in the UK and ensuring that network technology benefits UK consumers. Huawei is open to new ideas and ways of working to improve cyber security."