Solicitors for SNP Westminster leader Ian Blackford had demanded an apology after the Conservative MP Ross Thomson posted on social media calling him a “simple arms dealer”.
Mr Blackford’s lawyers have written to the Aberdeen South MP saying the comment was “defamatory” and calling for a £1,000 donation to a charity of his choice.
Mr Thomson’s post on Twitter has been taken down.
It came after a funeral plan investment fund Mr Blackford chairs, Golden Charter Trust, was found to have invested in BAE systems and Airbus.
Both companies have been involved in contracts to sell arms to Saudi Arabia, which is accused of committing war crimes in Yemen.
A source close to Ross Thomson said: “Ross has received the letter and will respond in due course.”