The government said on Thursday it had suspended a senior intelligence official who left a top secret file about Iraq and al Qaeda on a train, as MPs called for an inquiry.
A passenger found the orange folder on a London commuter service and handed it over to the BBC, which said it contained top secret documents on Iraq's security forces and the government's latest assessment on al Qaeda.
The sensitive papers had been in the possession of an unnamed official who worked in the Cabinet Office, the central government department that supports the work of Prime Minister Gordon Brown.
"I can confirm that he has been suspended," a Cabinet Office spokesman said.
The Cabinet Office said the intelligence official was authorised to take the seven-page file out of the office providing strict security guidelines were adhered to.
The spokesman would not give details of the mislaid documents but did confirm that they were secret.
Police officers from London's Counter Terrorism Command have begun an investigation into the incident while the Cabinet Office has launched its own internal inquiry.
Home Office Minister Tony McNulty told BBC TV it was a "very, very serious matter" and lessons needed to be learned.
However, the Conservatives have demanded an independent probe, saying it was the latest in a series of serious security blunders by the government.
"The government must make an immediate statement to parliament and an inquiry must be launched," said the party's security spokesman, Baroness Pauline Neville-Jones.
The BBC said the papers were assessments made by the government's Joint Intelligence Committee.
"It reveals what the government knows about al Qaeda's capabilities, and more importantly, its vulnerabilities," said Security Correspondent Frank Gardner, who read the documents.
The BBC has now handed the file over to police.
Government sources suggested the leak was embarrassing but would not actually hurt Britain's security.
But the news will hurt Brown, who has already been stung by accusations of lax security after a civil servant lost computer discs containing the names, addresses and bank details of 25 million people in the mail last year.
In January the Ministry of Defence reported it had lost a laptop containing personal data on 600,000 recruits.
Brown, whose popularity has plunged since he took over from Tony Blair last year, is promoting plans to roll out a national identity card system, and opponents of the measure often cite the government's poor record of keeping data secure.
The news came after the prime minister won a narrow victory in parliament on Wednesday to extend the period that terrorism suspects can be held without charge, after he was forced to rely on other parties following a rebellion by Labour MPs.
