Blair said the British Broadcasting Corp. report that his office had exaggerated estimations of Iraq's weapons of mass destruction was not true and that it questioned his credibility.
"It was an extraordinary allegation to make and an extremely serious one," he told an inquiry in to the death of a government weapons expert, who was caught up in a political storm over the government's Iraq policy.
"This was an absolutely fundamental charge ... this was an allegation that we had behaved in a way that, were it true ... would have warranted my resignation," he added.
Blair is only the second British prime minister to appear in public before a judicial inquiry.
Blair said a contentious government dossier on Iraq's arsenal was based on intelligence sources and was not manipulated for political reasons.
"At that stage (in September), the strategy was not to use the dossier as the immediate reason for going to conflict, but as the reason why we had to return to the issue of Saddam's weapons of mass destruction," he said.
Looking calm, Blair told the inquiry that a claim in the dossier that Iraq could deploy weapons of mass destruction within 45 minutes came from British intelligence, and was not inserted at the insistence of his office.
"I also knew it had to be a document that was owned by the Joint Intelligence Committee and its chairman John Scarlett ... We could not produce this as evidence that came from anything other than an objective source," he said.
Blair was giving testimony before an inquiry on why arms expert David Kelly, 59, apparently committed suicide after being identified as the likely source of the BBC report that the government exaggerated the threat of Iraqi weapons to win support for military action.
The Hutton inquiry is trying to determine how the government came to expose Kelly — a move that placed him under intense media pressure and led him to give testimony before two parliamentary committees. On July 18, three days after he testified, police found Kelly's body with his left wrist slashed.
Blair has denied responsibility for identifying Kelly. But in Wednesday's hearing, Defense Secretary Geoff Hoon said Blair's office authorized a news release saying an unidentified official at the Defense Ministry — where Kelly worked — had acknowledged speaking to a BBC journalist. That created a rush by British reporters to identify the source, with some guessing names until they came up with Kelly's and it was confirmed by the Defense Ministry.
Hoon also told the inquiry that Kelly had been treated well and protected by his bosses.
The BBC report, broadcast May 29, said an official dossier in September about Iraqi weapons had been "sexed up" by including a claim that Iraq's biological and chemical weapons could be deployed in 45 minutes.
The story cited a then-unidentified source as having said Blair's office overruled intelligence advice when it included the claim in the dossier. Kelly said he didn't believe he was the report's source for that information, but after he died the BBC said he was.
The hearings have uncovered scraps of evidence alternately favoring Blair or the BBC.
Among the minutiae have been moments of high drama. According to British envoy David Broucher, Kelly said at a meeting in February that if war broke out in Iraq "I will probably be found dead in the woods."
Contrary to the united front the news network projected, internal emails showed that the BBC was worried worried that their story had involved "sloppy reporting."
Evidence showed some intelligence officers were unhappy about the dossier. Scarlett, chairman of Britain's secretive Joint Intelligence Committee, denied it.
While Scarlett said he was in charge of preparing the dossier, although he did receive advice on wording and presentation from Blair's main spokesman, Alastair Campbell. According to the Times of London, Scarlett testified that Campbell asked for the language to be "tightened."
The inquiry revealed emails showing that some of Blair's own aides expressed doubts about the strengths of the evidence.
In more than five months since the start of war, no weapons of mass destruction have been reported found.
Now, according to The Los Angeles Times, the U.S. and its allies are worried that Iraqi defectors gave them fake intelligence, perhaps at Saddam Hussein's direction.