Israel knew its arch-enemy Iran held a stake in ThyssenKrupp when it planned to purchase submarines from the German firm, Defence Minister Avigdor Lieberman said on Tuesday.

"We have known Iran was a shareholder in the German company since 2004," the minister said in comments broadcast by public television, referring to the year of a previous order.

Lieberman said Israel "had no other alternatives" apart from the German company to buy new submarines.

The Jewish state has been embroiled in controversy over the past few days after media reported Iranian holding company IFIC continues to own a 4.5 percent stake in the German firm.

Israel sees Iran as its main enemy, and suggestions that the Islamic republic would benefit from its defence purchases made headlines.

Israel was reportedly negotiating to buy three submarines at a combined price of 1.2 billion euros ($1.3 billion), to replace the oldest vessels in its existing Dolphin fleet, which began entering service in 1999.

Foreign military sources say the Dolphins can be equipped with missiles armed with nuclear warheads.

Israel is the Middle East's sole if undeclared nuclear power, refusing to confirm or deny that it has such weapons.

According to defence ministry officials quoted by the media, Israel obtained guarantees from the German firm that Iran did not have access to confidential information on the submarines it would receive.

ThyssenKrupp has said IFIC's shareholding dropped from 7 percent to 5 percent in 2003, but has not said what stake the Iranian holding company now owns.

Before the reports of Iran's link to the company, Israel's attorney general had already ordered police to examine allegations of improper conduct in the planned purchase of the submarines.

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THYSSENKRUPP