Asmara rejected the move and said any evidence brought against it had been fabricated.
“The accusations have no bearing whatsoever with the facts. They are completely baseless,” Information Minister Ali Abdu told Reuters in an interview.
“If it (Britain’s move) is underpinned by the ulterior political motivations of that country then it is unacceptable and illegal by all standards.”
Britain’s move follows months of diplomatic threats against the Red Sea state.
The UN Security Council, African Union (AU) and United States have all warned Asmara against destabilising Somalia.
A UN arms monitoring body which was set up to record violations of a 1992 arms embargo on the country said Asmara was sending plane- and boatloads of munitions to Somali rebels, as well as providing them with logistical support.
The AU wants the United Nations to impose a sea blockade and a no-fly zone to stop people and weapons reaching Somalia.
Somali insurgent groups including al Shabaab, which Washington accuses of being al Qaeda’s proxy in the region are fighting against the fragile UN-backed government of Somali President Sheikh Sharif Ahmed.
The fighting has killed nearly 19 000 civilians since the start of 2007 and driven another 1.5 million from their homes.
While the move towards sanctions appears to be gaining momentum, top Eritrean officials say they are not cowed.
“The threat of sanctions are of no concern at all to Eritrea,” said Ali.
Eritrea and Ethiopia are accused of waging a proxy war in Somalia over a frontier dispute. The two countries fought a 1998-2000 border war that killed more than 70 000 people.
Pic: Eritrea President