BBC chairman Gavyn Davies resigned last night after Lord Hutton's report into the death of weapons expert Dr David Kelly severely criticised the corporation - and left Tony Blair virtually unscathed.

Mr Davies said: "I have been brought up to believe that you cannot choose your own referee, and that the referee's decision is final."

He said he would be writing to the Prime Minister to tender his resignation with immediate effect.

However, with the BBC apparently set to resist further resignations, Mr Davies also questioned the inquiry's findings.

Was it possible to reconcile the "bald conclusions" that Downing Street did not improperly interfere with the drafting of the dossier with evidence Lord Hutton heard? he asked.

And criticisms of the BBC did not take "sufficient account of the extenuating circumstances" created by Government attacks on the BBC throughout the second Gulf conflict.

Lord Hutton said BBC reporter Andrew Gilligan's assertions that the Government had "sexed up" its dossier on Iraq's weapons of mass destruction and included intelligence it knew to be probably wrong or questionable were "unfounded".

The judge also criticised the BBC management system which allowed the reporter to make his claims on Radio 4's Today programme as "defective" and said the governors should have investigated the Government's complaint about his story more fully.

Lord Hutton said there had been no "underhand" strategy on the part of the Government to disclose Dr Kelly's name to the Press and cleared ministers from Mr Blair down of any impropriety.

But the judge did say the Ministry of Defence was at fault and should be criticised for failing to tell Dr Kelly that his name would be confirmed by the MoD if it was put to press officers by reporters as the source for Mr Gilligan's story.

The inquiry findings - which were partially leaked to yesterday's newspapers - were a huge relief for Mr Blair, after a 24 hours in which he had scraped home in the crucial Commons vote on university tuition fees.

One member of the Government said: "There's a real feeling that it's time to draw a line under all this now."

BBC Director General Greg Dyke last night publicly apologised for the accusations contained in the report which sparked the controversy. He said: "The BBC does accept that certain key allegations reported by Andrew Gilligan on the Today programme on May 29 last year were wrong."

The Prime Minister swiftly called for those who had impugned his integrity and that of the Government to withdraw their allegations.

Mr Blair, in a statement to MPs delivered minutes after Lord Hutton finished reading out a summary of his findings, said his inquiry report "leaves no room for doubt or interpretation".

He told MPs: "The allegation that I or anyone else lied to this House or deliberately misled the country by falsifying intelligence on WMD is itself the real lie.

"And I simply ask that those that made it and those who have repeated it over all these months now withdraw it, fully, openly and clearly."

Dr Kelly's body was found near his Oxfordshire home on July 18 last year, after he had been identified as the source for Mr Gilligan's broadcast by the Ministry of Defence, which confirmed his identity to reporters who put it to officers.

Lord Hutton said Dr Kelly killed himself by cutting his left wrist. His death was hastened by swallowing a "concoction" of pills and an unknown heart condition.

The judge said no one else was involved in his death and no one involved in the controversy could have contemplated or foreseen that he would take his own life.

Lord Hutton said he agreed with an expert who said Dr Kelly would have felt "publicly disgraced" by the controversy.

The Government did "not behave in a dishonourable, underhand or duplicitous way" in confirming Dr Kelly's name to reporters.

Alastair Campbell, Mr Blair's former director of communications, said last night: "What the report shows very clearly is this: the Prime Minister told the truth, the Government told the truth, I told the truth.

"The BBC, from the chairman and director general down, did not. Today the stain on the integrity of the Prime Minister and the Government has been removed."

Tory leader Michael Howard told MPs: "When all is said and done I suspect that what will remain in people's minds is the blinding light that this inquiry has shed on the inner-most workings of the Prime Minister and his Government."

The evidence to the inquiry had painted an "extraordinarily vivid" picture of unminuted meetings and unrecorded phone calls as well as the state of mind of Mr Blair's closest advisors and confidantes.