The Defence Secretary surprised the Home Office by disclosing that he was withdrawing the offer, to the department, for RAF Linton-on-Ouse to be used to house 1,200 asylum seekers.
The move by Mr Wallace, a supporter of Liz Truss in the Tory leadership race, came just hours after Rishi Sunak, her rival and MP for the North Yorkshire seat of Richmond, had announced that he would block it if he became PM.
It sparked speculation that the migrant camp, opposed by residents including Kevin Hollinrake, the local Tory MP, had become a pawn in the increasingly acrimonious battle for the party leadership.
Mr Sunak’s allies suggested that the Defence Secretary’s timing “wasn’t a coincidence”, but supporters of Mr Wallace said that suggestions of politicking were “perverse”.
Whitehall sources warned it would hamper and delay plans to disperse more than 26,000 migrants from hotels, which is currently costing the taxpayer at least £3 million a day. One source said: “This will only mean more hotels and more public spending.”
Greek-style asylum camps, in tandem with the deportation of illegal migrants to Rwanda, have been key planks of Priti Patel’s immigration plan to deter the record Channel crossings.
A Whitehall source said: “Linton was the only site deliverable this year to complement the Rwanda policy. It shows a softness when it comes to tackling illegal migration and avoiding taking the difficult decisions needed to deal with this issue.
“The Home Office is used to having to drag other government departments with it to tackle illegal migration.”
Mr Sunak told the Yorkshire Post on Monday that, as prime minister, he would tell the Home Office to seek an “alternative solution” to Linton-on-Ouse as he shared local concerns that it was “not appropriate” to house hundreds of asylum seekers in a village of just 1,500.
Questioned about Mr Sunak’s comments on a visit to Huddersfield, Mr Wallace accused the former chancellor of a U-turn.
“He didn’t oppose it when he was in Government, so that’s a new surprise,” he said. “He was certainly supportive of it at the time. He isn’t now, interestingly enough.
“Because he’s not in government, he won’t know what’s been going on. I have withdrawn the offer to the Home Office for that site. It’s been with them for a number of months.
“I have obligations to do something else with that site, and you know, there are other sites we made available to the Home Office if they wish to take it up.”
The Home Office is understood to have only received notification on Tuesday, although Mr Wallace is said by allies to have made the decision 10 days ago before Mr Sunak declared his position. He cleared the confirmation letter to the Home Office last Thursday.
The Defence Secretary is said to have warned the Home Office in June that he would withdraw the offer unless it signed off on a “transfer of occupation”, which sources claimed it had failed to do in time.
However, the Home Office is understood to have been working to open the camp in September. A Whitehall source said: “It has taken all this time to get it ready. Why invest time in fighting challenges if we were not going to put people in it?
“It was collective government policy through the new plan for immigration.”
Linton-on-Ouse was chosen as the only viable site to open this year, with the other four sites judged to require substantial work or take years to get ready. It is expected to remain as a military base until its scheduled disposal in 2023 or 2024.
A government spokesman said: “The Government will continue to identify appropriate sites for Greek-style asylum reception centres which will play a key role in reducing the number of asylum seekers in hotels.”