Iraqi troops searching terrorist hideouts in Fallujah yesterday uncovered a chemical weapons laboratory with manuals on making explosives and toxins, including anthrax.

The weapons, including anti-tank mines and a mobile bomb-making laboratory, were found inside the Saad Abi Bin Waqas Mosque used by Sunni rebel leader Abdullah al-Janabi.

But former UN chief weapons inspector Hans Blix last night counselled caution in reacting to the find.

Addressing the Oxford Union he said: "Let's see what the chemicals are, many of these stories evaporate when they are looked at more closely."

The discovery came as US and Iraqi troops continued to sweep the city amid sporadic gun battles with rebel fighters.

A lieutenant of Iraq's most feared terrorist leader, Abu Musab al-Zarqawi, had been captured in Mosul, said national security advisor Qassem Dawoud.

He named him as Abu Saeed, but he gave no further details.

Al-Zarqawi, whose al Qaida-linked group has been responsible for car bombings and the beheadings of foreign hostages, including three Americans and Briton Ken Bigley, was believed to have been based in Fallujah, but he managed to escape the siege.

There have been unconfirmed reports that he is taking refuge in the so-called Triangle of Death, in northern Babil province, to the south of Baghdad.

The area has become notorious for mass killings, beheadings, kidnappings, assassinations, ambushes and roadside IEDs - improvised explosive devices.

Last night, ten suspected rebels, some of whom are believed to have been key players in recent attacks on British and US forces in and around the area, were being held for further questioning after pre-dawn raids on complexes of houses next to the Euphrates River.

In one of the biggest British military offensives since the fall of Saddam Hussein, more than 100 suspects were handcuffed, blindfolded and interrogated in the Black Watch operation. Many were later released.

Restoring order to northern Babil is a top priority for the interim Iraqi government of Prime Minister Iyad Allawi because key oil, power and road links to Baghdad run through the province.

The British troops used strong-arm tactics, breaking down walls and doors at some of the 50 houses they raided in the ten-hour operation, codenamed Tobruk.

Commanding officer Lieutenant-Colonel James Cowan said: "I don't believe that what we did was overly aggressive. Indeed, I think we applied minimum force throughout."

A "high value" suspect suspected of involvement in hostage taking was held within minutes of the raids being launched.