The decision to give lottery cash to a radical asylum lobby group has been criticised by the National Audit Office.

A study published on Wednesday suggested that the payment of £340,000 to the National Coalition of Anti Deportation Campaigns (NCADC) was "controversial".

The NAO called for a "wider assessment" of the nature of good causes in the future.

But the hand-out was found to be "entirely consistent" with the specific mandate of the lottery's Community Fund, which aims to help "vulnerable people".

The spending watchdog was asked to study the case after it emerged that the NCADC was fighting alongside failed asylum seekers to prevent their deportation.

The case provoked a flurry of complaints in the tabloid press.

And controversy increased after the NCADC website claimed that the home secretary was "colluding with fascism".

The report said that the failure to research the nature of the group had been partially responsible for the furore.

"The grant may have been less controversial if the fund had made a wider assessment of the organisation's activities in the first place,'' said auditor general Sir John Bourn.

He said the agency needed to conduct more thorough research into applicants.

Sir John also called for the establishment of guidelines for staff on what constituted "political and doctrinaire behaviour'' in order to avoid such problems in the future.

The Community Fund welcomed the report and the finding that the payment was "not improper".

It added that the fund had since imposed tough new terms and conditions on those receiving funding.

"I am pleased to see that the NAO says that the grant was entirely consistent with our stated policies," said chief executive Richard Buxton.

"However, we failed to spot the more politically sensitive elements of the group's work."

"We must do everything to make our procedures more robust to prevent this happening again in the future."