One of the world's biggest arms companies has pulled out of a major sponsorship deal with the Edinburgh International Science Festival following protests over "blood money".

However, Selex ES - accused of selling high-tech weapons and security systems to repressive and undemocratic regimes around the world - is still running one of the most popular children's activities at the festival, which starts in two weeks.

Campaigners have hailed the sponsorship cancellation as a "victory", but are now calling for the festival to cut all its ties with Selex ES. It is wrong for an educational event to have any association with a company that profits from war, they say.

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Selex ES, which has a base at Crewe Toll in Edinburgh, is part of the £11 billion Italian corporate giant, Finmeccanica, one of the world's top ten arms dealers. Selex ES describes itself as an "international leader in electronic and information technologies for defence systems".

The company has sold military surveillance drones to Pakistan, Jordan and Saudi Arabia, weapons and missile electronics to the United Arab Emirates and weapons management systems to Malaysia and Thailand. It has also provided radar for drones to the Israeli defence electronics company, Elbit, and is helping to develop a flight training centre for the Israeli air force.

The Sunday Herald reported a year ago that campaigns had been launched to "disarm the science festival". Selex ES was giving the festival £18,000 a year as one of its "major funding partners", as well as backing a programme of "generation science" school visits.

Now the company has withdrawn from these arrangements, saying that it is funding "complementary activities" elsewhere. But it is still running and staffing 'Rampaging Chariots' every day at the festival, helping hundreds of children build and race robots.

The Scottish Palestine Solidarity Campaign, concerned about links with the Israeli military, has accused Selex ES of 'profiting from death'. It has been lobbying the science festival in the run-up to this year's event to end all its links with the company.

"If a goal of the science festival is to educate Scottish society, crucial to that goal is to model ethics in science and education," said Dr Evelyn McGregor, chair of the campaign's Edinburgh branch.

"The campaign welcomes the news that Selex are no longer sponsors of the festival. However, support is not a matter of degree and so we now urge the festival organisers to lead by example in ethical event sponsorship and end all elements of the Selex partnership."

Other campaign groups took a similar line. "Festival organisers need to go further and end all associations with a company that has profited from war and conflict across the world," said Kat Hobbs from the Campaign Against the Arms Trade.

Dr Stuart Parkinson, executive director of Scientists for Global Responsibility, said: "We are very disappointed that Selex is still involved in one of the children's events at the festival."

Campaigners are backed by Ewan Aitken, a former Labour leader of the City of Edinburgh Council and a member of the science's festival's board. "I have expressed my concern to the board about being associated with Selex and I will continue to do so," he told the Sunday Herald.

Festival director, Dr Simon Gage, attributed Selex ES's decision to end sponsorship to "an update to its corporate social responsibility objectives". The company would present Rampaging Chariots but would not "receive the branding and benefits associated with a financial sponsorship relationship," he said.

"We have received correspondence from and met with the Scottish Palestine Solidarity Campaign, and we are taking the concerns raised seriously. This will be discussed at the highest level with our board of directors."

A spokesman for Selex ES said: "This year the company has taken the decision to not be a major funding partner of the festival but is funding a wide range of complementary activities aimed at highlighting to young people the thrilling, varied engineering careers open to them at companies like ours."

The company was pleased to be continuing its "decades of engagement" by running Rampaging Chariots. "Selex ES's commercial activity strictly respects international procedures and laws," the spokesman added.

"The company strongly supports the UK and Italian governments' approach to export sales and sells its systems and technology to customers which are approved by these governments."