The Director of the London School of Economics Sir Howard Davies was on Friday forced to resign amid an escalating row over the university’s financial links with the Libyan dictator Colonel Qadhafi’s regime.

Admitting his responsibility in the affair, Sir Howard said the LSE’s reputation had “suffered’’ as a result of its dealings with Libya.

An independent inquiry to be conducted by Lord Woolf, former chief justice of England and Wales, will look into how LSE came to accept millions of pounds in donations from the Qadhafi government.

At the heart of the controversy is a £1.5 million contribution it received from the Gaddafi International Charity and Development Foundation at the behest of Colonel Qadhafi’s son Saif-al Qadhafi who was a student at LSE from 2003 to 2008 and is accused of plagiarising his Ph D thesis.

The university also received a string of other donations, including £2.2 million for training 400 Libyan civil servants and “future leaders’’, according to WikiLeaks documents, and $50,000 for advising Libya’s sovereign wealth fund.

Over the past week, students have staged protests demanding that the university “pay back'' to the Libyan people the money it received from the Qadhafis.

Sir Howard admitted that it was a “mistake’’ to accept the donations and he had concluded that it would be “right’’ for him to step down.

“I advised the (governing) council that it was reasonable to accept the money and that has turned out to be a mistake. There were risks involved in taking funding from sources associated with Libya and they should have been weighed more heavily in the balance,’’ he said in a statement.

Meanwhile, there were calls for a wider inquiry into the links of other British universities which have received funding from governments with questionable human rights record.

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