A BLACKMAILER who hatched a bizarre plot involving a Nazi chalice and a boxer dog named Benji is considering legal action to recover the unique treasure.

The silver chalice, thought to have belonged to Hitler's henchman Hermann Goering but kept after the war in an attic in Sunderland, is being stored by police at a secret location until its future can be decided.

Yesterday, Derek Smith, of Tuscan Road, Sunderland, appeared before Newcastle Crown Court and pleaded guilty to blackmail.

The 51-year-old is accused of holding the boxer dog to ransom to demand the return of the £2m treasure.

Now the case looks set to spark a tug-of-war over the 12-inch chalice, which was taken from Goering's lair in Germany at the end of the war by a British soldier who eventually left it to Smith.

Speaking after yesterday's hearing, Detective Sergeant Chris Sybenga said that Smith had originally given the chalice to the blackmail victim, who cannot be named for legal reasons, as payment of a £30,000 debt.

But when its potential true value dawned on Smith, he tried to get it back by snatching her dog while she was in hospital.

The court was told he rang the woman to tell her: "I can vouch for your dog today but I may not be able to tomorrow."

The detective said: "We recovered the dog safe and well. When he came for the exchange, the police swooped."

Northumbria Police now have the chalice in a secure location and is believed to have insured it for £2m.

Smith, who the court heard yesterday has a heart condition, will be sentenced on March 15.

Judge David Hodson adjourned the hearing for reports. Smith was granted conditional bail.

Outside court, Smith said: "I pleaded guilty because it could be construed that I did threaten her - but it was only with regard to the recovery of something that belonged to me.

"This is really just a domestic situation that has got out of hand."

Smith said he had owned the chalice for about 27 years and wanted it back. "No one has a greater claim on it than I," he said.

Det Sgt Sybenga said: "There's certainly going to be some form of civil proceedings to decide the ownership of the chalice.

"The German government or Goering's relatives may feel that they have a claim."