The prime minister has confirmed that Saddam Hussein has been captured in Iraq.

The former Iraqi leader was arrested in his home town of Tikrit on Saturday night having been overthrown by British and American forces earlier in the year.

Downing Street provided the first official confirmation of the news in a statement on Sunday.

"I very much welcome the capture last night of Saddam Hussein," Tony Blair said.

He added that the news "removes the shadow" of his return from Iraq and "gives an opportunity for Saddam to be tried in Iraqi courts".

The US governor in Iraq Paul Bremer later said that "this is a great day in Iraq's history".

"Now it is time to look to the future of hope and reconciliation," he added at a Baghdad press conference.

"The tyrant is a prisoner, the economy is moving forward... and [there will] be the prospect of democracy in a few months."

Saddam's capture will provide a huge political boost to both Blair and President Bush.

The failure to discover any of Iraq's weapons of mass destruction has cast a shadow over the successful military operation.

Bush's war on terrorism, in which the prime minister has been his closest ally, has also been hindered by the failure to capture either Saddam or the other major figurehead Osama bin Laden.

He was captured asleep in Tikrit following a tip off and was said by the US military to be "talkative and cooperative".

America had offered a $25 million reward for information on his whereabouts which led to a successful arrest.

Saddam is set to be tried for war crimes and human rights abuses in an Iraqi court, in part because the US administration does not recognise the International Criminal Court in the Hague.

Blair took the opportunity to call for unity among feuding Iraqi parties who are scrapping for post-war power.

"I pay tribute to the work of the coalition intelligence and military forces in capturing him," he said.

"This is very good news for the people of Iraq. It removes the shadow that has been hanging over them for too long of the nightmare of a return to the Saddam regime. This fear is now removed.

"It also gives an opportunity for Saddam to be tried in Iraqi courts for his crimes against the Iraqi people. And it gives us an opportunity to take a step forward in Iraq.

"In particular I appeal for the Sunni community and former Ba'athist officials to grasp the opportunity for reconciliation. We should try now to unite the whole of Iraq in rebuilding the country and offering it a new future."

Leader of the opposition Michael Howard said "this is truly excellent news".

"I congratulate everyone involved in the pursuit and capture of Saddam Hussein," the Conservative leader said. "We must all hope that this will bring real peace in Iraq very much closer."

Liberal Democrat leader Charles Kennedy also welcomed the arrest but warned against a showtrial or a "perverse" abuse of human rights in the legal process.

"It is obviously a very positive, highly significant and welcome development," he said.

"I hope that due process and internationally recognised legal processes are now adopted.

"Whatever legal route is adopted it is important it is one that withstands international scrutiny."

Blair's special representative to Iraq Ann Clwyd said the news was "a wonderful Christmas present".

"Certainly for the people of Iraq it is terrific news because they needed to know that Saddam was not going to come back in any shape or form," the Cynon Valley MP told Sky News.

"That has always been the fear, that he would regain power again so that is fantastic news.

"And for people terrorised by Saddam's regime for over 30 years this brings some kind of closure to the whole terrible episode."

However although leading anti-war critic Alice Mahon said she was "delighted", the Labour MP said "we should not forget the West should never have supported him in the first place".

And rebel MP George Galloway, expelled by Labour over his opposition to the war, said the capture could "inflame" resistance the occupying forces.

"It might be seized upon by the prime minister as something to laugh about, but I very much doubt if it will be the last laugh, because the truth is the country was taken into the war on the basis of a lie," he told the BBC from Egypt.

"This will not stop the Iraqi resistance... if anything, it may set the resistance free, if you like, from the cloud of Saddam Hussein, and transform it into a purely national resistance movement without the charge that it's being controlled from behind by the deposed president."