The British government is to pay Eurotunnel up to stg£33m (€38.4m) over its no-deal Brexit ferry contracts.

In exchange for the cash, the firm has dropped its legal action brought over the "secretive" process used around the shipping deals.

The company, which operates the Channel Tunnel, was challenging a decision by Britain's Department for Transport to award contracts worth stg£108m (€125m) to three ferry companies.

It is thought the payout will ramp up further pressure on UK Transport Secretary Chris Grayling, who has been at the centre of a string of controversies.

UK Labour have branded his record "one of serial failure and routine incompetence", arguing his "trail of destruction has gone on long enough".

The debacle will also be seized on by opponents of Brexit.

Under the agreement the money will be used by Eurotunnel to help improve security and traffic flow at its UK terminal.

Mr Grayling, said: "The agreement with Eurotunnel secures the government's additional freight capacity, helping ensure that the NHS has essential medicines in the event of a no-deal Brexit.

"While it is disappointing that Eurotunnel chose to take legal action on contracts in place to ensure the smooth supply of vital medicines, I am pleased that this agreement will ensure the Channel Tunnel is ready for a post-Brexit world."

British Brexit Secretary Stephen Barclay said: "We are taking steps to ensure supply chains continue to function, whatever the circumstances of our departure, and that mitigation is in place to avoid disruption at borders."

The British government cancelled the contract awarded to Seaborne Freight last month.

The startup company was awarded the contract to run additional ferry services if the UK crashes out of the EU without a deal.

However, it emerged that Seaborne had no ships.

There was also controversy after people began scrutinising the ferry company's website.

The company was accused of using terms and conditions replicated from a takeaway delivery website.