The cost to the British government of military intervention in Libya is estimated to be £212m, almost a third less than ministers' previous prediction.

Defence Secretary Philip Hammond revealed the figure in a speech on Thursday, and confirmed that the cost would be met from the Treasury reserve, rather than the squeezed MoD budget.

In a speech to the Royal United Services Institute (RUSI) in London, Hammond argued that the successful Libya campaign that led to the downfall of Colonel Gaddafi proves the British military can still take on extra commitments despite cuts to its capabilities.

"This year, our armed forces have shown that - even with the enduring campaign in Afghanistan - they have the capability and the capacity to respond when the national interest requires," he said.

However while the £212m bill may be lower than some previous predictions, it is still higher than the government initially expected.

When military action began in March, George Osborne told MPs that the cost would be "in the order of tens of millions of pounds, not hundreds of millions".

In June Danny Alexander, the chief secretary to the Treasury, admitted that the price tag of the campaign would actually run in to the hundreds of millions.

Hammond was appointed defence secretary in October following the resignation of Liam Fox. The former transport secretary was destined to become the chief secretary to the Treasury in a Conservative majority government charged with implementing public spending cuts.

He tried to allay fears that he is only interested in saving money at the MoD by telling RUSI he understood the purpose of the department "isn't simply to balance the books; it exists to defend the country".

"But the situation we face now - after the years of political failure to grip the problem - is that eliminating the black hole in the defence budget is the only way to sustain military capability over the long-term."

The coalition blames Labour for overspending massively, particularly on procurement, while in office.

Hammond also said that the succesful conclusion of current operations in Afghanistan was his "first priority".