Labour business minister Pat McFadden is understood to have overruled objections to the release of £9.9 m in public funding for the £55m project.

The go-ahead last December is one of a number of challenged spending decisions to have come to light in the so-called “letters for direction” revelations.

This surround the practice of Whitehall officials seeking formal instructions to protect themselves from fallout from decisions they disagree with.

According to a report in the Yorkshire Evening Post,  the permanent secretary of the department of business, Simon Fraser, sought letters of direction from the former business minister.

But despite the Government’s plan to bring these decisions under fresh scrutiny, BAM’s job still looks safe. Leeds Arena is not included in the chief secretary to the Treasury’s audit of spending signed off since the start of 2010.

The Leeds Arena is expected to create 528 jobs – in construction and among the staff who will work there – and inject over £25m into the local economy.

A spokesman for the Department of Business, Innovation and Skills said: “Ministerial directions are issued very rarely and such a decision is never taken lightly.

“In the case of Leeds Arena it was made following careful consideration of the wider social and economic benefits that would flow.”