A CHINESE firm that wants to invest billions of pounds in Scotland after signing a deal with Nicola Sturgeon was knocked back by a council over concerns about a housing development it wanted to build.

Falkirk Council was approached by a representative of China Railway No 3 Engineering Group (CR3) with a proposal to build an affordable housing scheme.

But the local authority rejected the bid amid concerns about using housing units pre-fabricated in China, reducing the amount of work that would be created for local tradesmen and businesses.

Read More: Sturgeon urged to "shred" China deal over corruption links

Officials also feared the proposed deal might be in breach of strict procurement laws, which require jobs to be advertised across Europe.

The local authority confirmed that the Scottish Government then stepped in to broker talks between the council and Sinofortone, the second Chinese firm to sign a controversial Memorandum of Understanding (MoU) with the First Minister.

A spokesman said the Government had taken part in the discussions about possible development sites at the meeting, a statement that appears to contradict the SNP’s insistence that no specific projects are under discussion with the Scottish Government and that engagement with Sinofortone is at a "very preliminary" stage.

Ms Sturgeon has been under pressure over the deal, which opens the door to £10bn of Chinese investment in Scottish infrastructure, since its existence was not disclosed by the Scottish Government and it emerged that CR3’s parent firm has been blacklisted by Norway’s oil fund due to an "unacceptable risk that the company is involved in gross corruption".

Jackie Baillie, Scottish Labour’s finance spokeswoman, said the latest revelations over Ms Sturgeon’s “secret deal” raised more questions and that the First Minister "needs to start telling the truth, fast".

Read More: Sturgeon urged to "shred" China deal over corruption links

She added: "Falkirk Council said they knocked back a deal with this Chinese company because it wouldn’t create jobs – the SNP now need to urgently spell out the details of what the Chinese Consortium propose for Scottish projects.

"The SNP turned a housing shortage into a housing crisis, Nicola Sturgeon would be selling Scotland short if she is trying to solve Scotland’s housing crisis on the cheap.

"Nicola Sturgeon said there were no proposals on the table – but that story has now been completely blown out of the water. We have a Scottish council explicitly saying that the SNP Government and one of the companies in the consortium discussed specific plans.

"Nicola Sturgeon has simply not been telling the truth and that is completely unacceptable. Having signed a secret deal, the SNP have sought to mislead Scots about what the details where.

"This deal stinks and it has done from the very beginning. It’s time for the SNP to come clean about this deal and publish all the documents relating to it going back to when discussions first started."

Ms Sturgeon has stressed the MoU is merely a commitment to explore possible investment opportunities and no firms plans have been agreed.

However, Sir Richard Heygate, the firms' UK advisor, said there were hopes for affordable housing projects totalling 5000 homes in Edinburgh, Falkirk and Ayrshire worth £500m.

Falkirk Council confirmed officials were approached by an agent acting for CR3 late last year but said no deal was done. It is understood the firm was working in association with a UK-based affordable housing specialist and sought a contract to provide around 1000 homes.

However, senior figures at the local authority were concerned about the proposed use of "flat pack" housing units pre-fabricated in China. They also feared the deal would fall foul of procurement rules.

After the company's proposals were knocked back, the Scottish Government stepped in to ask Falkirk Council to meet representatives of Sinofortone.

Council officials met with Sinofortone and provided the firm with information about the local development plan, investment brochures and details of possible development sites. Scottish Government officials also took part in talks over possible sites.

Read More: Sturgeon urged to "shred" China deal over corruption links

No proposals have been agreed but some figures within the council - run by a Labour-led coalition - fear the Scottish Government is trying to engineer a deal behind the backs of councillors.

A Falkirk Council spokesman said: "We were approached by agents acting for both China Railway No 3 Group and Sinofortone in late 2015.

"As we would with any developer, we provided general information on our local development plan as well as information relating to potential sites for investment and house building.

"Subsequently, we were asked to establish an agreement with China Railway No 3 however their approach was not in an appropriate form we could progress and, to date, the matter has not been taken forward. We have not heard anything further from Sinofortone."

A Scottish Government spokesman said: “As we have said, the memorandum of understanding signed with SinoFortone relates to exploring investment opportunities in Scotland. No investment has been confirmed and no deals have been agreed.

“The Scottish Government would not enter into any deal that broke procurement rules or disadvantaged the Scottish economy.”