THE future of the National Lottery was thrown into confusion yesterday after a High Court ruling brought Camelot back into running for the new franchise.

In an embarrassing setback for the Lottery Commission, Mr Justice Roberts said its plan to negotiate exclusively with Sir Richard Branson's People's Lottery for the seven-year deal was ''conspicuously unfair'' and an abuse of power.

The decision led to verbal sparring between the rival contenders for the licence. Camelot will hold talks with the Lottery Commission today in a bid to resolve the situation, which was last night described as a ''shambles'' by Shadow Culture Secretary Peter Ainsworth.

The commission agreed ''time was of the essence'' in awarding a new licence but maintained that the People's Lottery would be more generous to good causes - a claim hotly denied by Camelot.

Under yesterday's ruling, Camelot was granted a month to revise its bid, effectively placing it on a level playing field with Sir Richard. The Virgin tycoon has already been given a month to come up with a #50m contingency fund to back up his bid in the event of low revenues and unforeseen costs.

Reacting to yesterday's ruling, he said: ''We still believe that the people of Britain will get the lottery they want and the People's Lottery will get the chance to reverse the continuing drop in sales, which is significantly eroding the contributions to good causes.''

But Camelot accused Sir Richard of getting his facts wrong. A spokesman said: ''Today's ruling isn't about the People's Lottery. It is about fair and equal treatment owed to Camelot by the Lottery Commission.

''In any event, Mr Branson should get his facts right. National Lottery sales are up 3% year on year and good causes continue to benefit more than expected from Camelot's role as operator.''

He supported the judge's ruling that any superiority of the People's Lottery bid should be ''treated with caution'' and said Camelot and Sir Richard remained ''very real rivals''.

Mr Justice Richards said in his ruling: ''I find it remarkable that the commission chose to allow the People's Lottery the opportunity to allay its concerns but to deny a similar opportunity to Camelot.

''Such a marked lack of even-handedness between the rival bidders calls for the most compelling justification, which I cannot find in the reasons advanced by the commission in support of its decision.

''In essence what I have decided is that the National Lottery Commission, while intending to be fair, adopted a procedure that resulted in conspicuous unfairness to Camelot. Such unfairness has rendered the decision unlawful. The decision will therefore be quashed.''

The controversy was seized upon by the Conservatives, who said: ''This is yet another characteristic of the growing shambles which seems to surround Chris Smith's Department of Culture.''

Shadow Culture Secretary Peter Ainsworth said it was ''extremely unfortunate'' that the awarding of the National Lottery contract had been shrouded in such uncertainty and he urged the Government to resolve the issue as a matter of urgency.

When the Lottery Commission rejected Camelot's bid last month, one of its main concerns was the integrity of GTech, the company's supplier of gaming software and terminals.

Camelot is now expected to acquire the relevant part of GTech's business to improve its chances of winning the franchise, effective from October 1, 2001.

The Lottery Commission said it would not appeal against the judge's decision because it wanted to end the uncertainty hanging over the bidding process. Chief executive Mark Harris said the commission would be speaking to both sides to give effect to the court's ruling ''as quickly and fairly as possible''. Commissioners are expected to meet Camelot today.

Camelot was awarded its costs, in excess of #250,000, against the commission.

Camelot's chief executive-designate, Ms Dianne Thompson, said: ''We are back in the race which is all that we wanted.''