British soldier in Afghanistan on Iran spy charges

(adds more evidence from court)

LONDON Oct 13 (Reuters) - A soldier who worked for Britain's top commander in Afghanistan became a spy for Iran after being passed over for promotion, a court heard on Monday.

Corporal Daniel James, 45, contacted Iranian officials in Kabul while working in "a very trusted and sensitive position" as interpreter for General David Richards, the British commander of NATO forces in Afghanistan, prosecutors told Britain's Central Criminal Court.

"The allegation in this case is that during the latter part of 2006, the defendant's loyalty to this country wavered and his loyalties turned to Iran, the country of his birth," prosecutor Mark Dennis said. James denies the charges. The court was told James made telephone contact with Colonel Mohammad Hossein Heydari who worked as Iran's military attache at its embassy in Kabul and sent him coded messages in emails.

"(James was in) a unique position to overhear and glean a good deal of operational or strategic information if he chose to do so," Dennis said.

"As General Richards himself puts it, the defendant's value as a hostile intelligence agent to a third party with aims contrary to that of the ISAF (International Security Assistance Force) and the government of Afghanistan cannot be underestimated."

He was arrested in December 2006, a few months after contact had been made. Police found a USB computer memory storage device in his kitbag with confidential documents, including details of military troop movements and knowledge of insurgent activities.

The court heard that James, who became a British citizen in 1986 and had previously worked as a salsa dance teacher in Brighton, southern England, believed certain officers had been racist and had prevented him being promoted to sergeant.

He was also said to be a fantasist.

"He has been described as something of a Walter Mitty character who would no doubt find his new clandestine role as something exciting and special," Dennis said.

James denies three charges under the Official Secrets Act of communicating and collecting information likely to be useful to an enemy, and wilful misconduct in a public office. (Reporting by Michael Holden)