Palantir has accused Sadiq Khan of “putting politics above public safety” after the London mayor blocked its £50m contract with the Metropolitan police in a move that has also led to tensions inside Labour over its involvement with the US tech company.

Louis Mosley, who heads Palantir in the UK and Europe, accused Khan of politicising procurement after he rejected a two-year deal for Scotland Yard to use AI to process intelligence in criminal investigations, as first revealed by the Guardian. Mosley said: “What Londoners value is not being mugged, not being raped by a serving police officer.”

The Met had planned to hire Palantir, which was co-founded by the Trump-supporting tech billionaire Peter Thiel, to automate aspects of investigations. But the mayor’s office, which oversees large Scotland Yard contracts, said there had been a “clear and serious breach” of procurement rules.

Palantir also works for the Israeli military and the Trump administration in its immigration crackdown. Khan has previously said Londoners only wanted to see public money being paid to companies that “share the values of our city”.

Last year, when the company’s chief executive, Alex Karp, was challenged that “Palantir kills Palestinians” in Gaza, he said: “Mostly terrorists, that’s true.” Khan’s stance puts him at odds with the UK government which has a £330m NHS England deal with Palantir and a £240m deal with the Ministry of Defence.

Scotland Yard said Khan’s move was “disappointing”, adding that without new technology it would have to cut officer numbers which would in turn affect the force’s ability to keep London safe.

On Friday, Mosley told Times Radio: “What Londoners value is not being mugged, not being raped by a serving police officer and that’s really what the focus here should be … If we are going to politicise procurement in that way then we are going to compromise public safety”.

His response drew an angry response from the Labour MP Stella Creasy, who said Mosley “should be ashamed of himself”.

She said: “To hear the CEO of Palantir using the serious matter of sexual abuse by Met officers to attack the mayor of London for rejecting his company and so cutting his profits shows exactly why Palantir are not fit to lecture anyone on values.”

Mosley also questioned why Khan took exception “with our values and not with other tech companies”.

“We may work with Israel, but so does Amazon, and so does Microsoft,” he said. “We may work with the Trump administration supporting the immigration enforcement arm of his government, so does Amazon, so does Microsoft … why do we get singled out?”

Mosley’s response came as Khan’s decision appeared to split parts of the Labour party. MPs including Rosena Allin-Khan and Clive Lewis called it the “right call”.

“Palantir does not reflect the values of our city,” said Allin-Khan. “We must maintain public trust and ensure that any tech partnerships truly serve the safety and rights of Londoners.”

Lewis said: “Other mayors and police and crime commissioners should take note and keep Palantir out of policing.”

But Peter Kyle, the business secretary, said Palantir could do things “no one else does around the world at the moment, and that’s something that I am really taken with”.

Kyle, who is among Labour ministers who have been lobbied by Palantir, according to records of ministerial meetings, called on the London mayor to “come out and explain” his “big decision”.

Scotland Yard appointed Palantir initially on a separate deal worth less than £500,000, which meant it did not have to be scrutinised by the mayor. That deal was to use AI to detect rogue officers by scanning to see how they might be abusing rosters and other systems.

The body that represents rank and file officers, the Metropolitan Police Federation, described it as a “big brother” system and criticised the “unchecked use of a controversial AI provider to spy on every single one of our colleagues”.

Met chiefs wanted to extend Palantir’s involvement, using it to scan criminal intelligence data for patterns and clues, as it already does for smaller police forces including Bedfordshire and Leicestershire. But City Hall found that the process for extending Palantir’s role did not allow bids from other suppliers.

Ministers say they are aware of the need for less reliance on foreign AI companies as the technology becomes increasingly applied in the delivery of public services.

Kyle said: “We need to have more British AI companies that can do those kinds of things, which is why I’ve taken equity stakes in British AI firms and British tech firms, so that we can scale them up much, much faster.”