A top civil servant insisted due process was followed over Peter Mandelson's security vetting today - raising fresh questions over the PM's grounds for sacking Olly Robbins.
Cabinet Office permanent secretary Cat Little said she believed procedures were abided by as she gave evidence to the foreign affairs committee.
The comments came amid speculation Foreign Office mandarin Sir Olly could be in line for a monster payoff after being ousted from his £240,000 a year role.
Some in Westminster believe that the taxpayer might face a £1million bill, although other sources said it is too early to know how the situation will play out.
Sir Keir repeated this morning that Sir Olly committed a 'serious error of judgment' by not informing him that vetting officials advised against going ahead with Mandelson's appointment as US ambassador.
The ousted civil servant told the committee earlier this week that he had received a letter formally dismissing him on Monday. He has argued that he was not permitted to tell the premier about vetting and had powers to make a decision on granting DV.
Ms Little has been uncovering documents related to Mandelson's appointment to the role, which have been demanded by the Commons.
Cabinet Office permanent secretary Cat Little said she believed procedures were abided by as she gave evidence to the foreign affairs committee
Olly Robbins told the committee earlier this week that he had received a letter formally dismissing him on Monday
She said all ministers and officials have now provided any messages exchanged with Mandelson, as required by MPs.
Asked about the process of granting Mandelson developed vetting status (DV), Ms Little said: 'So my view is that due process was followed, and if I might explain why I believe that it is because the process as I've outlined to the committee, is that UKSV (UK Security Vetting) make a recommendation and the Foreign Office make a decision as to whether to grant DV.
'That is the process, and that is the process that is agreed with the Foreign Office.'
Ms Little told the PM last week that Lord Mandelson had been granted high-level security clearance despite vetting officials recommending against it.
She had known since March 25 about sensitive information linked to Lord Mandelson's vetting.
She said today she acted as 'swiftly and effectively' as she could in informing Sir Keir but that it took some time to get expert legal advice about how to deal with such sensitive information.
Ms Little said Sir Olly had refused to share vetting information with her and that she took the 'very unusual' decision to request it from security officials directly.
'I took the very unusual judgment that I should directly request the information from UK Security Vetting, and I did that because I go back to my responsibilities to discharge the humble address, which is a responsibility that is unique to me, and I take very seriously.
'I felt that I needed to see some relevant documentation so that I could advise the Prime Minister as to whether we had fully complied and gathered the information that was available and within scope.'
She also revealed that there was an initial discussion over whether Lord Mandelson needed security vetting at all because he was a member of the House of Lords.
'Because the presumption had been that given Peter Mandelson had been a member of the House of Lords, that the long-standing convention that he didn't require developed vetting was assumed, and they wanted to get proper policy advice from experts on whether that was the case,' she said, referring to documents that showed such a discussion.
On a visit to Newcastle today, Sir Keir told broadcasters: 'I strongly think that the outcome of the security clearance exercise, the developed vetting exercise, was important and should have been brought to my attention, and could have been brought to my attention, and had it been brought to my attention before Peter Mandelson took up his post and I wouldn't have appointed him.
'I think it was a serious error of judgment. It's very important to make clear to everybody that Sir Olly Robbins does not suggest he did tell me that information.
'He makes it clear he took a decision not to give me that information. I think that was the wrong decision.'
Top officials forced out by Sir Keir in the past have already received large severance packages.
They include Chris Wormald, who stepped down as Cabinet Secretary in February, barely a year after being installed in the post. His payoff was reputed to be in the region of £260,000 although there have been hints it was considerably higher.
Mandelson himself received a £75,000 payoff after he was removed as US ambassador over his long-standing ties to paedophile Jeffrey Epstein.
Sir Keir said Sir Olly committed an 'error of judgment' by not informing him that vetting officials advised against going ahead with Mandelson's appointment as US ambassador
But the Spectator quoted one friend of Sir Olly saying his package could be much bigger.
'Olly was earning a million a year in the private sector,' they said.
'He is a younger man, his loss of future earnings is higher and the price for the reputational damage is huge.'
One source who has dealt with civil service compensation cases in the past said Ms Little's statement on due process being followed - which follows similar remarks from ministers - is likely to be a factor.
'That will make things a bit more interesting,' they added.