Margaret Thatcher sought to block moves to allow a group of MPs access to secret papers which were leaked to the media.
Files released by the National Archives reveal how the former Prime Minister resisted requests to allow the Commons Defence Committee to see details on Ministry of Defence spending which were leaked by a civil servant to the Press Association news agency.
MoD letters and internal documents were leaked to PA in 1980, allegedly detailing impending cuts. The six documents contained warnings by service chiefs that defence spending had been reduced.
The leak resulted in an MoD inquiry and a Met police investigation as the Government sought to catch the mole.
The Defence Committee demanded to see the documents relating to the
leak but Thatcher refused their request.
A memo sent from her private secretary to the MoD reads: "The Prime Minister has seen your Secretary of State's minute of 26 November 1980 about the request from the House of Commons Defence Committee that they should be given copies of all the documents about defence expenditure which were leaked to the Press Association.
"She agrees that Mr Pym (Francis Pym, Defence Secretary) should decline the committee's request but at the same time offer a memorandum on defence expenditure, in which he could respond to any particular questions the committee wish to ask."
The Prime Minister's chief press secretary, Bernard Ingham, sent a memo advising against releasing the documents to the select committee because "caving in" would limit the Government's room for manoeuvre.
The memo goes on: "We should not encourage people to the view that a document will be given to a select committee if it becomes, however improperly, the property of the press and public.
"It will be extremely difficult to draw the line if we were to cave in, against supplying (a) other documents mentioned in the leaked papers; and (b) other papers which are leaked in the future."
Instead he advises: "We shall no doubt look rather silly for a bit but the key thing surely is to do nothing, especially at this time, to encourage the habit of leaking - and this was a very serious leak - or to damage the confidentiality of the conduct of government business."
An investigation found that the secret documents were leaked by an MoD staff member to a PA reporter. The files suggested that the pair had been friends at university.
A memo later shows that the MoD suspected that PA had subsequently sent copies of the leaked documents to the Defence Select Committee.
The memo sent by private secretary Brian Norbury reads: "My Secretary of State has asked me to record that we have good grounds for believing that the Press Association have released to members of the House of Commons Defence Committee copies of the leaked documents which are at present the subject of the police investigation under the direction of the Director of Public Prosecutions."