Defence secretary Geoff Hoon has been urged to launch an inquiry into claims that soldiers were forced out of the army to cut costs.

Newspapers claimed on Monday that leaked documents revealed that officials dismissed soldiers rather than medically discharge them in order "to reduce the budget requirements on MoD".

The Liberal Democrats challenged both the official policy and the claimed number of personnel involved.

Paul Keetch, the party's defence spokesman, called for an inquiry into the affair.

The Ministry of Defence is currently facing a court case brought by some of the thousands of soldiers who say they were forced out of the army.

When an individual joins the army they sign a 22-year contract which allows them to leave after three, six and nine-year intervals.

If a soldier serves the full-term of the contract they become entitled to a full pension but, like many long-established companies, the MoD is facing a pensions crisis.

To tackle the problem, a policy of "manning control" was created under which staff were given the option to either leave or switch to short-term contracts which do not carry pension obligations.

The Liberal Democrats claim that the controversial scheme, pushed through at a time when the army is facing shortages of frontline staff, has hit at least 10 times more than the 2525 people the MoD claims have left under the scheme since 1988.

"The army should come clean about how many soldiers were told they would be sacked," said Keetch.

"Existing figures may mask the true extent of the sackings. The real numbers could be much higher.

"If there are genuine manning problems, qualified personnel should not be forced to leave the forces, they should be invited to join another unit.

"In the current climate of under-manning, this outdated policy should be scrapped. And those who suffered under it deserve redress."