The cost of building a new naval dockyard to refit nuclear submarines has almost doubled to more than £900m, amid allegations of fraud.

Some of the rising costs of the project at Devonport in Plymouth could be down to fraud by a sub-contractor, according to a report by the National Audit Office published today.

The refit facility was ordered in 1997 to be ready for February this year. But it was dogged by delays and the Ministry of Defence had to agree to bear any extra costs to get the project completed on time.

The MoD originally estimated the cost at £576m and received Treasury authorisation to spend up to £650m on the dockyard, which was built by the private contractor Devonport Management Ltd (DML). But the National Audit Office report says the latest estimate for the final cost is at least £933m, and the MoD will have to bear £849m of the cost.

The NAO said the costs may also have been affected by a possible fraud by one of the many sub-contractors working on the project. The sub-contractor was not directly employed by DML. Police and the MoD are investigating.

The shadow Defence secretary, Bernard Jenkin, said: "The contract originally stated that such cost overruns would have to be borne largely by the contractor. Why did the Government accept these additional liabilities?"

Lord Bach, the Defence Procurement minister, said the MoD had little choice but to accept the extra costs to ensure the re-fit of HMS Vanguard – one of the navy's four nuclear submarines – went ahead on schedule and Britain's nuclear deterrent was not compromised.