LONDON (Reuters) - Russian oligarch-backed investment firm LetterOne on Tuesday asked a London court to rule it was unlawfully ordered to sell a broadband provider, in the first challenge under Britain's recent national security law to reach London's High Court.

LetterOne, whose owners include sanctioned oligarchs Mikhail Fridman and Petr Aven, was made to sell regional provider Upp in December 2022 over fears that Upp's ultimate owners were vulnerable to "leverage by the Russian state".

The intervention was one of the first taken under Britain's National Security and Investment Act, which allows the government to scrutinise and potentially block acquisitions and investments in sensitive sectors.

LetterOne - which owns health food retailer Holland & Barrett and other businesses - is challenging its enforced divestment of Upp, which it says was sold for less than it had invested in the company.

The company's lawyer Tom Hickman said LetterOne proposed "a comprehensive package of legally binding measures" that would prevent Upp's ultimate beneficial owners, which include Fridman and Aven, from exerting any improper influence over Upp.

But, Hickman argued, the proposal was rejected, partly because officials wrongly took into account a potential risk that Britain's allies might perceive its response as too soft on Russia.

Lawyers representing the government, however, said the decision to order the sale of Upp was justified on national security grounds.

British officials also said at the time of the decision in 2022 that LetterOne's proposals would involve too much work for the government in having to monitor compliance.

Fridman and Aven stepped down from LetterOne's board and their shareholdings were frozen indefinitely after they were sanctioned following Russia's invasion of Ukraine in 2022.

LetterOne said in its annual review for 2023 that the pair "are not involved in any way, directly or indirectly" in the management of LetterOne.

(Reporting by Sam Tobin; Editing by Tomasz Janowski)

By Sam Tobin